Don’t Let Walmart’s Slowing Sales Fool You

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Walmart may have given the wrong impression with all that talk about TikTok. At the end of the day, it is a slow-growing, mature retailer—and that is perfectly fine.

The retailer had a standout holiday quarter. Net sales grew 7.4% in the quarter ended Jan. 31 compared with a year earlier. U.S. comparable sales grew 8.6%, far exceeding the 5.3% growth that analysts polled by Visible Alpha had expected. E-commerce sales grew 69% in the quarter. Yet Walmart shares dropped almost 6% Thursday morning after results were announced.

Two things may have weighed on investors. The company incurred a net loss of $2.1 billion and gave relatively muted guidance, saying that U.S. comparable sales would rise by a low-single-digit percentage this fiscal year compared with the 8.6% increase it saw for the last full fiscal year.

Neither is particularly worrisome. The loss is largely a result of charges related to previously announced sales of foreign operations. As for the guidance numbers, growth was bound to slow some after a bumper year. Before the pandemic, Walmart’s U.S. comparable sales had been growing in the low-single-digit percentage range, if not declining, for the last decade. That has also been the case for other mature retailers such as Target and Kroger.

This means the real potential for a company like Walmart comes from how much more profit it can juice from a slow-growing revenue base. And things look pretty promising on that front. Fueled by Walmart’s e-commerce growth, advertising revenue nearly doubled last year and Walmart said Thursday that it should be a multibillion-dollar business in the near future. Morgan Stanley estimates that it could generate $4 billion of revenue and $2 billion of operating income by 2025. That would translate to roughly 9% of last fiscal year’s operating income.

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