Last week, Walmart (WMT) posted fourth-quarter results that failed to meet expectations. The outlook is a red flag, causing WMT stock to lose 8.65 percent. Despite hiking its dividend by 13% to $0.235 per share, the 0.9% forward yield is too low.
Walmart expects net sales growth of 3% to 4% in fiscal 2026, with a 100 bps headwind due to currency. The firm needs to improve its gross margin mix and general merchandise growth to offset weaker consumer demand.
In the near term, investors need to let Walmart’s prior investments pay off. The firm insulated its business from macroeconomic challenges by creating convenience for customers. In Q4, stores and clubs still drove volumes. E-commerce changes continued and should do the same.
Consumers prefer convenience over value, so Walmart should sustain gross margins. To meet demand, the company increased its inventory by 2.8%. That would insulate it from any supply disruptions or cost increases related to tariffs.
Walmart posted healthy margins, thanks to solid inventory management. In-stock items improved, while momentum for sell-through and seasonal sell-through continued.
Risks
The retailer needed to mark down items to drive sales. Rollbacks on over 5,800 items risk hurting profitability. Fortunately, these sales promotions are driving customer traffic. This will strengthen Walmart’s appeal over other retailers.
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