VALUATION HIGHLIGHTS

1. Walmart US constitutes 75% of the Trefis price estimate for Wal-Mart's stock.
2. Walmart International constitutes 19% of the Trefis price estimate for Wal-Mart's stock.

WHAT HAS CHANGED?

1. Walmart Tops Estimates in Q3

The retailer reported adjusted EPS of 58 cents, beating the consensus of 53 cents. Its Q3 sales were $169.6 billion, up 5.5% year-over-year (y-o-y), beating the consensus of $167.7 billion. Walmart U.S same-store sales climbed by 5.3% y-o-y, excluding fuel, aided by strong broad-based growth in merchandise categories and physical and digital channels. The gross margin rate was up 21 bps, aided by improvement in the Walmart U.S. In addition, the retailer's operating income was up $0.5 billion, or 8.2%, and up 9.8% y-o-y (at constant currency) on higher gross margins, growth in membership income, and reduced eCommerce losses.

Global eCommerce sales rose 27%, driven by store-fulfilled pickup and delivery as well as marketplace growth. Global advertising business grew 28%, including 26% for Walmart Connect in the U.S.

Note: Walmart's FY'24 ended on January 31, 2024. Q3 FY'25 refers to the quarter that ended on October 31, 2024

2. FY 2025 Guidance

Looking ahead, Walmart sees Q3 sales growing at a 4.8% to 5.1% rate compared to previous guidance of 3.75% to 4.75%. It also raised its adjusted EPS guidance to $2.42 to $2.47 from a previous expectation of $2.35 to $2.43.

3. Walmart Announces 3-to-1 Stock Split

Walmart Inc. split its outstanding shares of common stock at a ratio of 3:1. The stock split is part of Walmart’s ongoing review of optimal trading and its desire for its associates to feel that purchasing shares is easily within reach. Walmart's common stock began trading on a post-split basis at the market open on Monday, Feb. 26, 2024. Since going public, Walmart has done a total of 10 stock splits, including the recent one - where the last stock split was seen 25 years ago.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Walmart's value that present opportunities for upside or downside to the current Trefis price estimate for Walmart:

Walmart U.S.

• US Revenue per Square Foot: Going forward, we expect Walmart's revenue per square foot to increase gradually from $627 currently to $786 by the end of our forecast period. However, there can be an upside of close to 5% if this figure ends up around $840 by the end of our forecast period driven by online growth and smaller store expansion. On the contrary, there can be a 5% downside to our price estimate if this figure only increases to $680 due to weak consumer confidence, a fall in foot traffic, and self-cannibalization.
• The U.S. Number of Stores: We estimate the number of Walmart stores in the U.S. to remain flat at about 4,720 by the end of our forecast period. There can be a downside of approximately 5% to our price estimate if the store count decreased to only 4,693 in a situation where the company further scales down its small store expansion.
• U.S. Gross Margins: We estimate this figure to marginally increase from the current level of 26.3% to 27.7% by the end of our forecast period. There could be a downside of about 6% to our price estimate if rising input costs lead to a decline in margins to about 25.4% by the end of our forecast period. On the contrary, if the retailer keeps leveraging its huge buying power to get discounts from vendors, and margins reach 30%, there can be a 6% upside to our price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Walmart at the top of the page.

BUSINESS SUMMARY

Walmart is the largest retailer in the world with nearly $648 billion in annual revenues and over 10,623 stores worldwide. The company sells goods across almost all merchandise categories including groceries, electronics, appliances, apparel, sporting goods, home furnishing products, and drugs, while strictly adhering to its EDLP (everyday low price) strategy. However, it earns around half of its revenues from groceries.

Walmart operates in three business segments: Walmart U.S., Walmart International, and Sam's Club. Walmart's U.S. segment is the largest segment of its business, accounting for approximately 60% of its revenues. Sam's Club is the retailer's warehouse model where it charges its customers an annual membership fee, allowing them to buy products at heavy discounts.

SOURCES OF VALUE

The U.S. segment is the most valuable to the company. Walmart has built a trusted brand with a clear value proposition and has expanded across the U.S., resulting in it becoming the nation's largest retailer.

Walmart U.S. stores are bigger and yield more revenue per unit of retail space

Although Walmart has fewer stores in the U.S. compared to international markets, an average U.S. store is about 2.5 times as big as the international store in terms of retail square footage. As of fiscal 2024, the square footage per store for Walmart US was 148,770 while that for Walmart International was 51,540. Revenue per square foot for Walmart's U.S. stores in FY 2024 was higher at $598 versus $371 for Walmart's International stores. Thus, despite being similar in store count, the U.S. segment is more valuable to the company compared to its international segment.

KEY TRENDS

Threat of self-cannibalization due to massive size

Like any retailer, Walmart's long-term sales and income growth depend largely on the company's ability to open new stores and expand into new markets. However, due to Walmart's size, it runs the risk of cannibalizing its own sales figures in the U.S., thereby effectively competing with itself for market share. This is the reason why Walmart has slowed down its Supercenter expansion in the U.S.

Improving store productivity and smaller stores in urban markets

Opening more Supercenters and large format stores may be difficult for Walmart due to its massive presence in the U.S. The company is, therefore, focusing efforts on increasing its store productivity. To achieve this, the retailer has been remodeling its stores and converting its discount stores into supercenters. While Walmart's discount stores offer a wide assortment of general merchandise and a limited variety of food products, its supercenters offer a full-line supermarket and general merchandise.

Walmart's executives have indicated that the retailer's future stores will occupy 8% less space, cost 16% less, and will run more efficiently. The retailer's smaller stores, called Neighborhood market stores, are one-tenth the size of a typical Walmart Supercenter and offer 15,000 items in comparison to 100,000 offered at a Supercenter. Although the size is much smaller, Neighborhood markets offer day-to-day groceries & general merchandise and are focused on attracting customers who shop regularly for their daily needs. This format can be successful in big cities, which have space constraints and where busy schedules limit many customers from driving to a supercenter.

Walmart rewards program for Walmart+ members

The retailer's loyalty program Walmart+ is priced at $98/year - lower than the $139/year subscription of Amazon Prime. Like other subscription services, Walmart Plus offers its members early access to sales promotions, deals, and game-console releases, as well as fuel discounts across its partners’ gas stations. Plus, they’ve entered the grocery shopping space with fee-less home deliveries.

Walmart Plus members also get early access to Walmart’s Black Friday sales. That’s a major advantage; when discounts roll in, members get first dibs on electronics, toys, apparel, and more products before the general public — and possible out-of-stock notifications.

Walmart acquires Vizio

Walmart confirmed that it is acquiring Vizio in Feb 2024, a television maker, for $11.50 per share in cash, or around $2.3 billion in fully diluted equity value. Walmart aims to sell advertising through this deal. The acquisition of Vizio and its Smart TV operating system (SmartCast) is expected to enable Walmart to create new opportunities to help advertisers connect with customers. WMT can offer ads through SmartCast which has more than 18 million active accounts.