Where's the Beef at Wal-Mart?
The company's much ballyhooed profit transformation (via growth of higher-margin businesses) has come up short from a bottom-line perspective.
This week, calendar Q4 earnings season for retailers largely kicks off Thursday morning when Wal-Mart (WMT - $128.85) reports its quarterly results.
As I’ve previously written (see headline below), tariffs that were announced in early-April 2025 have not had the unfavorable impact on GPM% that many expected at the time.
But, let’s go beyond tariffs and focus on WMT’s theoretical “profit transformation” that has left much to be desired.
Over the past 2-3 years, WMT management has been touting the company’s “re-shaping” of its P&L via outsized growth in higher-margin businesses (e.g., Membership, Advertising, Marketplace, Fulfillment Services, Data Analytics).
The problem is that the company’s GPM% gains are slowing, SG&A Expense de-leverage has been a large-scale headwind over the past 2-3 years, and the company’s overall level of profitability (EBIT%) is roughly similar today than in FY 2019 (despite shedding lower-margin international businesses in Argentina, the U.K, and Japan).
The company’s top-line success of late has been stellar. But, the company’s top-line success has simply not fallen to the bottom-line.
Also, don’t be fooled by the company’s General Merchandise category excuse (macroeconomic pressures on a lower-income shopper). The category’s recent underperformance is not a new phenomenon. FY 2025 is likely to be the 5th consecutive year that the General Merchandise category has underperformed at the core division (see data below).
Why is the General Merchandise category underperforming at Wal-Mart US? Consumers appear to be continuing to shift their General Merchandise purchases elsewhere (i.e., Wal-Mart’s issues with the category are likely larger than macroeconomic pressures on a lower-income consumer or recent category LFL deflation).
The end result is that I think WMT’s initial guidance for FY 2026 tomorrow comes up short of today’s consensus expectations. For a stock that has risen approximately +20% thus far in calendar 2026, that could become a problem.
Below, I’ve copied/pasted my earnings preview note for WMT along with my earnings model.
