Walmart earnings: Growth in digital buoys margin amid consumer trade-down
We think Walmart stock is significantly overvalued.
Mentioned: Walmart Inc (WMT)
Key Morningstar metrics for Walmart
- Fair Value Estimate: $62.00
- Morningstar Rating: ★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What we thought of Walmart’s earnings
Walmart’s WMT fourth-quarter results included 5.6% net sales growth and adjusted EPS of $0.74. The firm continues to benefit from widespread demand across income cohorts, while strength in digital and memberships helped lift gross margin by 10 basis points to 24.7%.
Why it matters: Even with consumer wallets stretched, Walmart continues to attract shoppers by emphasizing convenience as much as price. This is evident in its digital offerings, as e-commerce revenue grew 24% globally, driven by omnichannel pickup and delivery.
- Walmart US posted 4.6% comparable sales growth, supported by price-led traffic, resilient grocery demand, and greater use of pickup and delivery. We think its store-fulfilled omnichannel model is widening engagement and value perception, particularly among higher-income households.
The bottom line: We plan to lift our $62 fair value estimate by a high-single-digit percentage, reflecting the time value of money and a modestly stronger medium-term profit outlook. This stems from faster scaling in retail media, which we see as improving wide-moat Walmart’s earnings mix and stability.
- Despite the improved outlook, we view shares as overvalued, with the current price implying operating margins above prior peaks of 6%, which we see as unlikely amid intense competition. We think the market is pricing in outsize gains from discretionary mix and automation initiatives.
- The firm’s high-margin digital revenue streams are rapidly altering the profit algorithm. Global advertising (up 37%) and membership fees now account for over a quarter of EBIT, which we see as enabling greater flexibility to capitalize on Walmart’s e-commerce operations and reinvest in prices.
Coming up: Management struck a conservative tone for the upcoming fiscal year, while guiding to a slower first-quarter profit cadence due to timing of expenses and tariff impacts. Despite this, we think digital investments and price leadership should continue to win value-conscious shoppers.
