Walmart's Stock Review: What Investors Need to Know for FY25
Walmart Inc. WMT has been benefiting from its diverse business model that spans multiple segments, channels and formats. The company's strong omnichannel strategy has boosted traffic across both physical stores and digital platforms. Its emphasis on improving delivery services has been successful, contributing to steady grocery market share gains.
Upsides like these, along with growth in the advertising business, fueled second-quarter fiscal 2025 results, wherein the top and bottom lines grew year over year and e-commerce sales surged. However, the retail landscape remains dynamic due to challenges like inflation and volatile consumer spending. While Walmart raised its fiscal 2025 view, its modest growth targets for the third quarter reflect a cautious approach.
Walmart’s Growth Story
Walmart has been benefiting from an increase in both in-store and digital channel traffic, reflecting its adept navigation of the evolving retail landscape. The company continued to showcase a robust performance in the second quarter of fiscal 2025, wherein it experienced growth across all business segments. Newer ventures like the marketplace, advertising and membership have also contributed to diversified profits, further reinforcing the resilience of Walmart’s business model. The company's global advertising business increased 26% in the second quarter.
WMT has been gaining from its sturdy comp sales, driven by its constant expansion efforts and splendid e-commerce performance. Walmart has been strengthening its physical fleet, which plays a dual role by catering to customers directly and also fulfilling a considerable chunk of the company’s e-commerce sales. It has been focused on store remodeling in an attempt to upgrade them with advanced in-store and digital innovations. Walmart remodeled 245 U.S. stores in the second quarter. The company is also gaining from its compelling pricing strategy and efforts to enhance merchandise assortments.
In the second quarter, U.S. comp sales, excluding fuel, improved 4.2% due to transaction growth of 3.6%. Sales growth was backed by strength in transactions and higher unit volumes in both stores and e-commerce channels. Walmart U.S. witnessed continued share gains fueled by higher-income households. The segment experienced gains from grocery and health & wellness. Sam’s Club’s comp sales, excluding fuel, grew 5.2%. Comp sales were driven by strength in food as well as health & wellness.
Walmart continues to be driven by its strong omnichannel business. From investing in pioneering data analytics to expanding its digital presence and optimizing in-store operations, Walmart leaves no stone unturned. Impressive store proximity to customers has allowed Walmart to use its stores to fulfill e-commerce orders. The company has undertaken several initiatives to enhance e-commerce operations, including buyouts, alliances and improved delivery and payment systems.
In the second quarter of fiscal 2025, global e-commerce sales surged 21% on store-fulfilled pickup & delivery and marketplace. As of the second quarter of fiscal 2025, Walmart U.S. had nearly 4,600 pickup locations and about 4,300 same-day delivery stores.
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Near-Term Challenges for WMT Stock
While Walmart remains focused on executing its strategy and serving customers, the broader economic and geopolitical environment is more unpredictable than usual. Given these uncertainties, the company projected third-quarter sales growth between 3.25% and 4.25%, operating income growth of 3-4.5% and earnings per share (EPS) of 51-52 cents. These modest growth targets reflect the cautious approach to the volatile backdrop.
Two factors are expected to put additional pressure on the third-quarter operating income. First, the timing of international festive events could impact sales and profits, making year-over-year comparisons less favorable. Second, planned expenses are more heavily weighted in the third quarter, further straining profitability and growth in this quarter compared to the fourth quarter.
What to Expect From WMT Stock in FY25?
Despite the challenges, Walmart’s omnichannel strategy and diversified operations reinforce the company’s position as a retail powerhouse. At its last earnings call, the company raised its guidance for fiscal 2025. It expects consolidated net sales growth of 3.75-4.75% (at cc) compared with 3-4% expected earlier. Consolidated operating income is expected to increase 6.5-8% at cc, up from 4-6% projected before. Walmart expects adjusted EPS for fiscal 2025 to be in the $2.35-$2.43 range, up from the prior guidance of $2.23-$2.37.
Shares of this Zacks Rank #3 (Hold) company have rallied 16.2% in the past three months compared with the industry’s 15.5% growth.
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