VALUATION HIGHLIGHTS
- Walmart US constitutes 74% of the Trefis price estimate for Wal-Mart's stock.
- Walmart International constitutes 19% of the Trefis price estimate for Wal-Mart's stock.
WHAT HAS CHANGED?
- Walmart Tops Estimates in Q4 FY 2025
The retailer's adjusted earnings per share (EPS) of $0.66 (up 10% year-over-year) compared to the analysts' consensus of $0.65. Revenue for the quarter was $180.6 billion (up 4% y-o-y), slightly above the predicted $180.2 billion.
This rise was accentuated by a 16% boost in eCommerce, which plays a crucial role in fulfilling pickups and deliveries from stores. Meanwhile, operating income grew by 8.3% y-o-y to $7.9 billion, boosted by higher margins and membership growth.
A breakdown into key segments reveals that Walmart U.S. delivered a 5.0% sale increase to $123.5 billion, with eCommerce sales climbing 20%. However, margins were slightly depressed by rising operational costs. On the international front, sales registered a decline of 0.7%. Yet, when adjusted for constant currency, they surged to 5.7%, with China and Canada performing well. Sam’s Club exhibited a 5.7% growth to $23.1 billion, despite absorbing some negative impacts from wage investments.
Note: Walmart's FY'25 ended on January 31, 2025.
- New Revenue Streams
Walmart is diversifying its revenue streams beyond retail, emulating rival Amazon. In Q4, its advertising and third-party marketplace businesses delivered gains and higher margins, albeit on a smaller scale than Amazon's.
Global membership income grew by 16% y-o-y in Q4, with some of that coming from its subscription-based membership program, Walmart+, in addition to warehouse club Sam’s Club. Its global advertising business grew 29%, including a 24% increase in Walmart Connect.
Walmart’s third-party marketplace and its fulfillment services segment, which packs and ships orders for marketplace sellers, also rose by double digits in Q4.
- FY 2026 Guidance
In the fiscal year ahead, Walmart expects net sales to grow 3% to 4% and adjusted operating income to increase between 3.5% to 5.5% on a constant currency basis. The company said that includes a 150 basis point headwind from acquiring smart TV company Vizio. In FY'25, Walmart posted adjusted operating income growth of 9.7% on a constant currency basis. The company also expects full-year adjusted earnings of $2.50 to $2.60 per share.
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 $662 currently to $820 by the end of our forecast period. However, there can be an upside of close to 5% if this figure ends up around $888 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 $738 due to weak consumer confidence, a fall in foot traffic, and self-cannibalization.
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The U.S. Number of Stores: We estimate the number of Walmart stores in the U.S. to remain flat at about 4,605 by the end of our forecast period. There can be a downside of approximately 5% to our price estimate if the store count decreases to 4,100 in a situation where the company further scales down its small store expansion.
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U.S. Gross Margins: We estimate this figure to marginally increase from the current level of 26.9% to 27.4% 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 25.5% 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 $680 billion in annual revenues and around 10,750 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: U.S., International, and Sam's Club. Walmart's U.S. segment is the largest segment of its business, accounting for approximately 70% 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 company's most valuable segment is the U.S. segment. Walmart has built a trusted brand with a clear value proposition and 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 3 times as big as the international store in terms of retail square footage. As of fiscal 2025, the square footage per store for Walmart U.S. was 151,600 while that for Walmart International was 49,300. Revenue per square foot for Walmart's U.S. stores in FY 2025 was higher at $662 versus $451 for Walmart's International stores. Thus, despite being fewer 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 acquired 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.
