Walmart's fourth-quarter financial report exceeded expectations, but its profit guidance fell short. The CEO said, "Low-income families in the United States can only barely make ends meet."

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Despite strong holiday shopping season sales propelling Walmart’s fourth-quarter revenue and profit above Wall Street expectations, this has not masked concerns about its future profitability in the market.

According to LSEG data, Walmart expects adjusted earnings per share for the current fiscal year to be between $2.75 and $2.85, which is notably below Wall Street’s expectation of $2.96. Influenced by this guidance, Walmart’s stock price fell 1.38% on Thursday, closing at $124.87. Nevertheless, the company’s shares have risen about 12% so far this year.

As a barometer for the U.S. economy, Walmart’s executives revealed clear polarization in the American consumer market. New CEO John Furner pointed out that while high-income households with annual income above $100,000 are driving market share growth, households with annual income below $50,000 are facing financial hardship. In a conference call with analysts, he candidly stated that this low-income group is “tightening their wallets,” and in some cases can only “barely make ends meet.”

This earnings report is also a turning point in Walmart’s history. According to the financial data, Amazon’s revenue in the recent fiscal year reached $716.9 billion, surpassing Walmart’s $713.2 billion for the first time and becoming the largest company in the world by annual revenue. This highlights the changing landscape of retail industry competition and is prompting Walmart to further accelerate its digital transformation into ecommerce and advertising.

Weak Earnings Guidance Raises Concerns

Walmart performed solidly in the fourth quarter ending January 31. The company reported revenue of $190.66 billion, higher than analysts’ expectations of $190.43 billion; adjusted earnings per share were $0.74, slightly above the expected $0.73. Excluding fuel, same-store sales in Walmart U.S. grew 4.6%, with Sam’s Club rising 4%.

However, the market focus is on its cautious outlook for the new fiscal year. Besides the lower-than-expected EPS guidance, Walmart expects full-year net sales to grow by 3.5% to 4.5%.

At the same time, to reward shareholders, Walmart announced a new $30 billion stock buyback authorization, replacing the $20 billion buyback plan approved in 2022.

“K-Shaped” Consumption Polarization Intensifies

Walmart’s results further confirm the “K-shaped economy” trend described by economists, where consumption capability is increasingly polarized between affluent and low-income groups.

CFO John David Rainey told CNBC that while the company gained market share across all income groups, the growth was more significant among high-income households. He cited that fashion items saw mid-single-digit growth in the fourth quarter, which almost entirely came from households earning above $100,000 a year.

In contrast, low-income groups are facing significant consumption pressures. John Furner noted that these groups are struggling to cope with rising costs of food, housing, and utilities. Executives also mentioned “recruitment slowdowns,” low consumer confidence, and student loan defaults as factors behind their caution for the future. This trend aligns with that of other discount retailers like Dollar Tree, which also reported their new customers mostly coming from high-income families.

Strong Ecommerce and Technological Transformation

To face fierce competition from Amazon, Walmart is investing heavily in digital business. In the fourth quarter, Walmart U.S. ecommerce sales grew 27% year-on-year, and global ecommerce sales rose 24%. This marks the 15th consecutive quarter of double-digit growth for its digital business.

Currently, ecommerce makes up 23% of Walmart’s total U.S. sales, a record high. This is thanks to store fulfillment for pickup and delivery orders, which grew about 50%, and sales of its ad business Walmart Connect, which rose by about 41%.

To reinforce its tech attributes, Walmart switched its stock listing from the NYSE to tech-heavy Nasdaq last December, and its market cap surpassed $1 trillion earlier this month. John Furner emphasized that the company is using artificial intelligence to reduce inventory and labor costs, achieving growth at lower expense.

Inflation and Tariff Impact Expected to Ease

On the macroeconomic environment, Walmart executives struck a relatively optimistic tone. John David Rainey told Bloomberg that tariff-driven inflation has peaked or is peaking, and he expects price pressures from inflation and Trump-era tariff hikes to ease in the coming months.

Rainey noted that Walmart’s inflation rate in the U.S. in the fourth quarter was only slightly above 1%, which seems to be a “more normalized price environment.” He believes the retail industry has largely absorbed or withstood the impact of tariffs. This view contrasts sharply with Amazon CEO Andy Jassy’s comments last month, who warned that tariffs are starting to “creep into some prices.”

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