Walmart forecast disappoints, shares fall on consumer spending worries

By Siddharth Cavale and Savyata Mishra

(Reuters) - Walmart on Thursday forecast sales and profit for the current year below Wall Street estimates, citing the need for caution in navigating an uncertain geopolitical landscape.

Walmart shares, which had risen about 72% in 2024 and hit a record high last week, were down 6%. Shares of rival retailer Target lost 1.2%, and Amazon declined 1.6%.

High interest rates and persistent inflation have hampered U.S. consumer spending for two years. President Donald Trump's new tariff on Chinese goods and threatened tariffs on products from India, Mexico, and Canada, have further cast a shadow over the economy.

"We're one month into the year, so I think it's prudent to have an outlook that is somewhat measured," Chief Financial Officer John David Rainey said on a post-earnings call. "We don't want to get ahead of ourselves, there is certainly some unpredictability in any environment that we have, but we feel really good about our ability to navigate that."

Despite issuing disappointing guidance, Walmart sees U.S. shoppers as "resilient" and focused on value, Rainey said.

He said the retailer did not include an assumption of new U.S. tariffs in its guidance, but said Walmart can manage any new duties well, without offering details.

Sandal maker Birkenstock and toymaker Hasbro cited the economic impact of tariffs as reasons for issuing muted forecasts.

Walmart said its low prices helped it report strong holiday quarter sales and post record annual revenue. But investors focused instead on its disappointing outlook.

"Walmart's lower-than-expected guidance is a warning that U.S. consumer spending is slowing, said Brian Mulberry, client portfolio manager at Zacks Investment Management, a Walmart investor.

"At the moment, the labor market is still strong," he said, adding that if Walmart's soft guidance is followed by a decline in jobs, "it would be a strong signal that economic growth is slowing."

Walmart forecast adjusted earnings per share for the fiscal year ending January 2026 in the range of $2.50 to $2.60, below analysts' expectations of $2.76, according to data compiled by LSEG. It said annual sales are expected to rise between 3% and 4%. Analysts had expected 4% growth.

Walmart is among the first major U.S. retailers to shed light on market conditions. Target will report its holiday-quarter results on March 4. Wall Street expects the retailer to post a nearly 1% decline in 2024 sales.

Walmart is "concerned about the changes going on in Washington if tariffs increase the cost of goods sold and the consumer pulls back," said Gerald Sparrow, chief investment officer at Sparrow Capital Management, which owns $4 million in Walmart shares.

Walmart's sales outlook includes a 20 basis point impact from the negative effect of an additional day in the leap year of 2024, and a boost of 20 basis points from the acquisition of smart-television manufacturer Vizio, the company said.

U.S. retail sales experienced their largest monthly decline in two years in January, hampered by frigid temperatures, wildfires, and motor vehicle shortages.

But Walmart appeared to remain unscathed with total U.S. comparable sales rising 4.6% in the fourth quarter, with January being its strongest month for sales, Walmart said. That surpassed analysts' estimates of a 4.15% increase.

Higher income customers or households making six figures were the top drivers of market share in the latest quarter, Walmart said, with seasonal merchandise, auto and home products being top draws. General merchandise sales rose in the low-single-digits, while grocery sales rose in the mid-single digits, helped in part by higher sales of its in-house brands.

The company also noted higher sales of GLP-1 drugs in the quarter. Overall, transactions, excluding fuel, rose 2.8% at its more than 4,600 U.S. stores with average checks at the till rising 1.8%.

U.S. e-commerce sales rose 20%, the retailer said, adding that one-third of shoppers elected to have deliveries in three hours or less.

Fourth quarter adjusted earnings came in at 66 cents per share, topping expectations by 2 cents. Sales rose 4.1% to $180.6 billion.

The retailer also bumped up its dividend by 13% to 94 cents per share, the largest increase in more than a decade.

(Reporting by Savyata Mishra in Bengaluru and Siddharth Cavale in New York; Editing by David Gregorio)