WMT Earnings Preview: Setting the stage for the holiday season

Walmart is scheduled to report its Q3 FY2025 earnings on November 19 before the market opens, with FactSet consensus estimates for EPS at $0.53 and revenue at $167.65 billion. Analysts are projecting that Walmart will maintain its robust performance as value-conscious consumers seek affordable options amid ongoing inflationary pressures. Key metrics to watch in this report include Walmart's US same-store sales, projected to grow by 3.68%, and its e-commerce growth rate, expected at 2.22% as Walmart continues to compete with both traditional retailers and e-commerce players like Amazon. Analysts are also focused on Walmart’s advertising business, Walmart Connect, and its membership service, Walmart+, both seen as profitable growth avenues that help diversify the company’s revenue streams.

The holiday season looms large for Walmart, as it does for all retailers, and this year presents unique challenges with a shorter selling period, five fewer days between Thanksgiving and Christmas compared to last year. Bank of America analyst Robby Ohmes notes that Walmart’s position as a digital and omni-channel powerhouse could play to its advantage during this condensed shopping season. Additionally, Walmart has strengthened its digital offerings, enabling consumers to shop flexibly through online purchases, in-store pickups, and home deliveries. These enhancements have helped Walmart establish a competitive edge, even attracting more affluent shoppers, a demographic that has historically favored other retailers.

Walmart’s focus on groceries, which make up about 60% of its US sales, remains a cornerstone of its strategy, as grocery prices continue to attract budget-conscious shoppers. Goldman Sachs analyst Kate McShane highlighted that Walmart's average basket of food is priced approximately 10-12% lower than competitors, which has helped the company capture market share from peers like Target. Walmart's strength in groceries, combined with its expanding non-retail businesses—such as advertising, pharmacy delivery, and Walmart+—creates a balanced revenue portfolio that provides both stability and potential growth, making it a strong player in both offensive and defensive market strategies.

Analysts are optimistic about Walmart’s profitability potential, largely driven by alternative revenue streams. For example, Telsey Advisory Group recently raised Walmart’s price target to $92, citing confidence in Walmart’s ecosystem, which includes advertising, merchant services, last-mile delivery, and digital payments. These areas are higher-margin than traditional retail and are expected to contribute significantly to Walmart’s profitability over time. Walmart Connect, in particular, saw advertising sales surge by 30%, a testament to Walmart’s success in integrating higher-margin, technology-driven segments that appeal to both consumers and investors.

Membership services are also expected to play a significant role in Walmart's earnings report. Walmart+ has seen a recent membership surge, partly driven by partnerships like the one with Burger King, which offers exclusive discounts to Walmart+ members. According to Morgan Stanley's Consumer Pulse survey, Walmart+ membership grew by about 30% in August, signaling strong demand for the service. This growth in Walmart+ membership not only brings in recurring revenue but also strengthens customer loyalty, creating a steady and predictable income stream that supports Walmart's long-term strategic goals.

Walmart’s Q3 report will also be a key indicator of how consumers are preparing for the holiday season. CFO John David Rainey mentioned that back-to-school sales were promising, suggesting a potentially strong holiday period. With Walmart’s broad reach across various income levels, including increased engagement from higher-income households, the company is well-positioned to capture spending across demographics. Walmart's diversified product offerings, combined with its value-driven approach, help the retailer remain resilient even during economic uncertainties, drawing in customers who prioritize both price and convenience.

Walmart’s Q2 report revealed a mixed but generally positive performance, highlighted by stronger-than-expected comp sales in its Walmart US segment, driven by robust transaction counts and unit volumes in both stores and e-commerce. Despite Walmart’s cautious outlook for the quarter, its US comp sales (excluding fuel) rose by 4.2%, exceeding last quarter’s 3.8% growth. This performance is notable given Walmart’s warnings that Q3 would be challenging, suggesting that the retailer’s value-focused approach is resonating well with customers. Growth in general merchandise and sustained strength in food and wellness categories also contributed, with the latter seeing a boost from GLP-1 drug sales at Walmart and Sam’s Club.

Sam’s Club demonstrated resilience with comps excluding fuel up by 5.2%, supported by strong growth in food, health, and wellness, alongside solid e-commerce sales growth of 22%. Walmart International also contributed positively, with sales up 8.3% in constant currency, driven by strength in Walmex, China, and Flipkart. Notably, Walmart's e-commerce segment continues to shine, with Walmart Connect’s advertising sales growing by 30% as Walmart benefits from an expanding advertiser base, including marketplace sellers. Additionally, the report noted Walmart’s share gains across various income levels, especially among higher-income households, showing the brand’s broad appeal and strengthening position within the retail sector.

Investor optimism was further fueled by Walmart’s solid execution and defensive product mix. Analysts at Telsey Advisory Group raised their price target on Walmart to $82, noting that Walmart’s ecosystem expansion beyond traditional retail, encompassing areas like advertising, merchant services, and last-mile delivery, offers attractive margins and enhances its customer relationships. This ecosystem is expected to support profitable market share gains as Walmart remains resilient amid shifting consumer trends. Despite a modest EPS beat, Walmart’s guidance hike for FY25 EPS and revenue underlined the company’s confidence in future performance, positioning it as a strong defensive player in the retail landscape.

In sum, Walmart is expected to report another quarter of steady growth, bolstered by a combination of core grocery sales and profitable alternative revenue streams. While some analysts remain cautious due to a peakish valuation and the possibility of a challenging holiday season, Walmart’s ability to drive growth across both low-margin essentials and high-margin alternative businesses places it in a uniquely favorable position. As retailers enter the crucial final months of the year, Walmart’s earnings and forward guidance will be closely watched as a bellwether for the broader retail industry.