Q4 2025 Summary
Published Feb 20, 2025, 4:25 PM UTC- Walmart's newer profit streams, such as advertising, membership, and Walmart Fulfillment Services (WFS), are significantly contributing to operating income growth and improving profitability. These businesses contributed to over half of the operating income growth in the recent quarter, indicating strong potential for future earnings expansion.
- Walmart is approaching a positive free cash flow inflection and has increased its dividend by 13%, the largest increase in over a decade. This reflects the company's strong financial health and confidence in future earnings, as well as a commitment to returning cash to shareholders. Additionally, Walmart plans to buy back more stock than last year, indicating confidence in the company's valuation and future prospects.
- Walmart's e-commerce business is significantly improving its profitability, with an 80% reduction in U.S. e-commerce losses over the last year. Incremental margins in the e-commerce business globally were around 11%, over twice the rate of the overall company margin. The growth of higher-margin digital businesses, such as advertising and membership, is further enhancing profitability.
- Walmart is experiencing pressure on gross margins due to the continued shift in merchandise category mix towards lower-margin grocery and health & wellness and away from higher-margin general merchandise. Management acknowledges that this mix shift is expected to continue into the next fiscal year, which could impact profitability.
- The increase in e-commerce penetration is leading to higher SG&A expenses, as digital transactions have higher costs than in-store transactions. Management notes that as the business becomes more digital, it creates pressure on SG&A expenses, potentially impacting operating leverage and margins.
- Walmart's guidance for fiscal year 2026 assumes a relatively stable macroeconomic environment, but management acknowledges uncertainties related to consumer behavior and global economic conditions. If the macroeconomic environment worsens, Walmart may experience sales shortfalls, and it's unclear how the company would respond in such a scenario.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +4.1% (from $173,388M to $180,554M) | Overall revenue growth was driven by robust net sales performance across segments, with the strong U.S. market contributing significantly to the increase, building on performance improvements seen in prior periods. |
Walmart U.S. revenue | +5.0% (from $117,643M to $123,523M) | U.S. revenue increased due to higher comparable sales, driven by improved transaction counts and average ticket size enhancements. The growth builds on previous strong in-store and digital performance, which had established an upward momentum. |
Walmart International revenue | -0.7% (from $32,419M to $32,208M) | International revenue declined modestly because of challenging market conditions and possible currency headwinds, contrasting with the stronger domestic performance seen earlier, while some promotional timing issues might have further hindered growth. |
Sam's Club revenue | +5.7% (from $21,852M to $23,099M) | Increased performance at Sam’s Club is attributable to robust membership growth and improvements in same‐store sales—particularly in food and consumables—that built on a steady performance track record from previous periods. |
Operating Income (EBIT) | +8.3% (from $7,254M to $7,859M) | EBIT improved thanks to enhanced margins and cost efficiencies amid rising revenues, as higher-margin segments and effective operating leverage offset rising costs that had begun to impact earlier periods. |
Net Income | -4.4% (from $5,494M to $5,254M) | Net income declined despite higher operating income, reflecting increased non-operating expenses such as higher interest costs and other expenses, which eroded some of the gains achieved in underlying operations compared to the previous period. |
EPS (Basic/Diluted) | Turnaround from –$1.8 to $0.65 | EPS recovery indicates a significant turnaround driven by improved core operations and the resolution of prior period losses or adjustments, resulting in a positive bottom line compared to the negative EPS previously observed. |
Depreciation & Amortization (D&A) | +317% (from $3,117M to $12,973M) | A dramatic increase in D&A reflects substantial capital investments in modernizing the supply chain, upgrades in technology, and aggressive store remodels—which dramatically expanded the depreciable asset base relative to Q4 2024. |
SG&A Expenses | +6.4% (from $34,309M to $36,523M) | Rising SG&A expenses are driven by higher wage-related costs, additional spend on store remodels, and increased marketing investments linked to ongoing digital and operational transformations that were already affecting the expense base in earlier periods. |
Interest Expense | +9.6% (from $549M to $602M) | The moderate increase in interest expense is a result of higher borrowing costs and increased finance lease obligations, which continued a trend from previous periods as Walmart leveraged debt to fund its initiatives. |
Capital Expenditures (CapEx) | +300% (from $5,932M to $23,783M) | A major surge in CapEx signals Walmart’s strategic ramp-up in investments for supply chain enhancements, technology upgrades, and store expansions. This leap, building on earlier periods’ lower spending, underscores a decided shift toward capitalizing future growth opportunities. |
Dividend Payments | +337% (from $1,534M to $6,688M) | Dividend payments increased substantially as Walmart moved to deliver higher shareholder returns, leveraging strong free cash flow and improved operational performance, which represents a sharp shift compared to the more modest dividend outlay in Q4 2024. |
Share Repurchases | +200% (from $1,497M to $4,494M) | The increase in share repurchases reflects strong free cash flow generation and a strategic decision to enhance shareholder value, building on prior repurchase programs while taking advantage of favorable market conditions. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales Growth | FY 2026 | 4.8% to 5.1% | Approximately 3% to 4% | lowered |
Operating Income Growth | FY 2026 | 8.5% to 9.25% | 3.5% to 5.5% | lowered |
Adjusted EPS | FY 2026 | $2.42 to $2.47 | $2.50 to $2.60 | raised |
CapEx | FY 2026 | no prior guidance | 3% to 3.5% of sales | no prior guidance |
Sales Growth | Q1 2026 | around 3% to 4% | 3% to 4% in constant currency | no change |
Operating Income Growth | Q1 2026 | around 5% to 7.5% | 0.5% to 2% in constant currency | lowered |
Adjusted EPS | Q1 2026 | no prior guidance | $0.57 to $0.58 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Sales Growth | Q4 2025 | “around 3% to 4%” | 4.13% (calculated from Total Revenue in Q4 2025: 180,554Vs Q4 2024: 173,388) | Beat |
Operating Income Growth | Q4 2025 | “around 5% to 7.5%” | 8.34% (calculated from Operating Income in Q4 2025: 7,859Vs Q4 2024: 7,254) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
E-commerce performance and profitability | Previous calls in Q1 ( ), Q2 ( ), and Q3 ( ) described mixed sentiment with notable improvements in growth and efficiency but continued uncertainty around margins and operational challenges | Q4 ( ) again presents a mixed picture: significant efficiency gains and margin improvements are noted alongside persistent macro-level uncertainties | Consistent focus; slightly better operational metrics while uncertainties remain |
Membership growth and digital advertising | Q1 ( ), Q2 ( ), and Q3 ( ) consistently emphasized strong high‐margin growth from membership and ad revenues | Q4 ( ) continues to report robust membership income growth and expanding digital advertising, reinforcing high-margin contributions | Steady growth with consistently positive sentiment |
Gross margin pressure from merchandise mix shifts | Q1 ( ), Q2 ( ), and Q3 ( ) highlighted headwinds from a sales mix shift―more spending on lower‐margin categories counterbalanced by efforts in general merchandise and ancillary revenue streams | Q4 ( ) again notes margin pressure due to shifts toward grocery and health and wellness while improved inventory and pricing strategies help offset some pressure | Persistent concern; management offsets pressure through diversification, though challenges remain |
Macroeconomic and geopolitical uncertainty impacting future performance | Q1 ( ) and Q2 ( ) discussed uncertainty from the economic environment; Q3 did not mention this topic specifically | Q4 ( ) acknowledges a relatively stable outlook while still emphasizing uncertainties in consumer behavior and global conditions | Re-emergence of focus; uncertainty is again a salient concern in Q4 compared to its absence in Q3 |
Operational efficiency and automation investments | Q1 ( ) showed early moves with automation and AI implementations, Q2 ( ) documented progress in fulfillment automation and AI-driven tools, and Q3 ( ) underscored further automation and Gen AI applications | Q4 ( ) builds on these initiatives with new AI agents, expanded supply chain automation, and continued focus on reducing SG&A, leading to improved ROI | Consistent and deepening focus; technology and automation investments are increasingly driving efficiency |
International expansion and market penetration | Q1 ( ) and Q2 ( ) focused on strong performance in key international markets with rising eCommerce and membership metrics; Q3 ( ) furthered the discussion with specific developments in China, Mexico, India, and Chile | Q4 ( ) reaffirms international growth with steady sales increases and enhanced customer delivery, notably in China and Mexico | Robust and steady expansion globally with continuous market penetration enhancements |
Emergence of new profit streams and financial initiatives | Q1 ( ), Q2 ( ), and Q3 ( ) highlighted new streams such as Walmart Fulfillment Services, advertising, and data analytics; however, earlier periods had minimal focus on dividend or buyback actions | Q4 ( ) expands on these streams and introduces a notable dividend increase and a plan for increased buybacks alongside continued WFS and ad growth | Sustained diversification of profit streams; Q4 brings additional emphasis on shareholder returns |
One-off operational disruptions | Q1 ( ) mentioned healthcare clinic closures due to profitability concerns; Q2 ( ) noted GLP-1 drug sales and minor operational issues; Q3 ( ) detailed both GLP-1 sales impacts and natural disaster–related store closures | Q4 ( ) only notes a minor impact from GLP-1 drug sales with no other significant disruptions mentioned | Diminishing emphasis; one-off disruptions are less prominent in Q4, suggesting improved operational resilience |
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Earnings Guidance & Macro Sensitivity
Q: Is Walmart more sensitive to the macro environment, and how is this reflected in FY26 guidance?
A: Management feels confident that customers will continue to seek value and convenience. They reported strong momentum with a 5% sales increase and 9% bottom-line growth in the quarter. The guidance for next year suggests a normalized operating income growth of 5%–7%, consistent with prior years and reflecting their confidence despite any macroeconomic sensitivity. -
Earnings Guidance & Tariffs
Q: Is EBIT growth guidance conservative, and how will tariffs impact?
A: Management believes the guidance reflects prudence amid uncertainty, noting that the 5%–7% EBIT growth (excluding VIZIO and leap day effects) is consistent with prior years and even slightly better when normalized. They have no explicit assumptions on tariffs in their guidance but feel confident in navigating any impacts. -
E-Commerce Profitability
Q: How will e-commerce margins evolve over time?
A: They anticipate improved e-commerce profitability as the business scales. The incremental margin was about 11% this quarter. Growth is expected through network densification, customers paying extra for faster delivery, and expansion in high-margin areas like membership and advertising. -
Walmart Plus Membership Growth
Q: How is Walmart Plus membership growth trending?
A: Walmart Plus membership shows consistent growth, with increased deliveries and orders per member. New services like pharmacy delivery are seeing strong uptake, and members are finding value, leading to higher repeat rates. -
Operating Expenses & SG&A
Q: How should we think about the SG&A ratio?
A: As the business shifts towards e-commerce, SG&A expenses are higher due to channel mix. Management expects supply chain automation to drive improvements in SG&A over time , focusing on everyday low cost while investing in the business. -
Capital Allocation & Free Cash Flow
Q: Are we nearing a positive free cash flow inflection, and thoughts on capital allocation?
A: Management believes they are close to an earnings and free cash flow inflection, benefiting from business changes. They announced a 13% increase in dividends and plan to buy back more stock than last year , balancing returning cash to shareholders with investing in the business. -
Lower Markdowns & Promotional Landscape
Q: How did lower markdowns affect Q4, and assumptions on promotions in '26?
A: Improved inventory management led to reduced markdowns and better gross margin. They are prepared for various promotional environments and remain focused on delivering value to customers. They anticipate normalized inflation of 1%–2% for the upcoming year. -
Consumer Environment
Q: Has anything changed in the consumer environment recently?
A: Management observes consistent and resilient consumer behavior. They see stable trends and remain optimistic due to strategic improvements and omnichannel capabilities. -
VIZIO Acquisition Integration
Q: Details on VIZIO dilution and integration plans?
A: Walmart expects some dilution related to transaction costs in Q1 (about 70 basis points). The acquisition is anticipated to be accretive next year. Integrating VIZIO will enhance Walmart Connect and provide more avenues for advertising distribution. -
PhonePe IPO and ROI
Q: Details on PhonePe growth and ROI outlook?
A: PhonePe reached ₹1.7 trillion in total payment volume with 310 million daily transactions. They are preparing for an IPO, marking a significant milestone. Management aims to see ROI increase every year, with recent investments approaching 20% returns. -
E-Commerce Profitability Drivers
Q: What drives improved e-commerce profitability?
A: Key drivers include network densification with more deliveries per route , customers paying extra for faster delivery , and growth in high-margin areas like advertising and membership, which contributed over a quarter of operating income. -
Inflation Assumptions
Q: Underlying inflation assumptions for next year?
A: Management plans for a normalized year with 1%–2% inflation. They do not expect significant inflation in grocery or general merchandise. -
Gross Margins & Mix Impact
Q: How will mix impact gross margin this year, as general merchandise improves?
A: They expect the mix impact on gross margin to be about half of the 100 basis points decrease seen last year. Improvements in general merchandise sales and units are encouraging , and growth in marketplace categories is contributing positively. -
Reinvesting & Growth Investments
Q: Why not invest faster given rising incremental margins?
A: Management believes they are striking the right balance between investment and margin expansion. They will continue investing in price, associates, technology, and supply chain automation while driving profit growth. -
Investments in Canada
Q: Long-term opportunity in the Canada market?
A: They are pleased with top-line growth in Canada, particularly e-commerce growth up 30%. Focus on value and convenience is resonating with customers, and they are excited about recent investments in the market. -
Impact of Immigration
Q: Any impact from immigration issues?
A: Management states that immigration has not impacted them in any significant way. -
Alternative Revenue Businesses
Q: Have alternative revenue businesses reached scale?
A: Management believes there is substantial room for growth in newer businesses. Categories like automotive, toys, and patio in the marketplace are growing over 20%. They are investing in enhancing customer experience and assortment. -
Sam's Club Membership Growth
Q: How is Sam's Club membership performing?
A: Membership is at all-time highs, with renewal rates up and first-year renewal rates up hundreds of basis points. Investments in associate wages are reducing turnover by 1,700 basis points year over year. -
Consumer Confidence Post-Election
Q: Has consumer confidence changed after election or recently?
A: Management continues to see consistent consumer behavior, with resilience and little change post-election. -
Delivery Speed & Express Delivery Growth
Q: How is demand for express delivery impacting e-commerce?
A: Same-day delivery under three hours and under one hour grew 180% year over year. Customers are paying extra for faster delivery, improving unit economics in e-commerce. -
Macro Sensitivity & Course of Action
Q: If macro sensitivity results in sales shortfall, what's the plan?
A: Management feels confident in their value and convenience offerings. They are pleased with inventory levels and in-stock positions, positioning them well for the year.