Will Currency Fluctuations Weigh on Walmart's Earnings?

Introduction

Walmart Inc. (NYSE: WMT) recently reported its fourth-quarter earnings, revealing robust growth despite headwinds from currency fluctuations. As the world's largest retailer, Walmart's performance is closely scrutinized, especially regarding how external economic factors, particularly currency exchange rates, can impact its revenues and overall profitability. In its latest earnings release, Walmart reported a revenue increase of 4.1% year-over-year, with a notable 5.3% growth in constant currency. This article delves into the specifics of Walmart's earnings to determine whether current and future currency fluctuations will weigh on its earnings.

Market Position and Performance Analysis

Walmart maintains a strong position in the global retail market, leveraging its scale, competitive pricing, and omnichannel strategy to drive sales. The company has successfully enhanced its eCommerce offerings, which grew by 16% globally this quarter, indicating a strong consumer preference for online shopping. Walmart's U.S. comparable sales increased by 4.6%, highlighting its ability to draw in more customers during a challenging economic environment. Despite a slight dip in international sales due to currency translations, Walmart's overall consolidated revenue marked a healthy rise, thus demonstrating resilience against adverse currency movements.

Financial Performance Amid Currency Challenges

For the fourth quarter, Walmart reported total revenues of $180.6 billion, reflecting a 4.1% increase on a year-over-year basis. When adjusted for constant currency, this revenue growth surged to 5.3%, underscoring the significance of currency fluctuations in its international operations. Notably, the company's gross profit margin improved by 53 basis points, primarily driven by better performance in its U.S. segment. Earnings per share (EPS) for the quarter stood at $0.65, with adjusted EPS reaching $0.66. Furthermore, Walmart's operating income climbed 8.3%, suggesting that the core business remains strong even amidst external pressures. However, it is crucial to note that currency fluctuations negatively impacted sales by $2 billion and operating income by $0.2 billion.

Examining the expense structure, Walmart's operating expenses rose by 6.5% compared to the prior year, highlighting the cost pressures faced in various segments. Total operating income for the fiscal year 2025 reached $29.3 billion, up from $27.0 billion the previous year, reflecting an 8.6% increase. This positive trend in income indicates the company's ability to manage operational costs effectively while still coping with currency risk. While capital expenditures have risen to support growth initiatives, free cash flow decreased to $12.7 billion, down by $2.5 billion, partly due to increased capital investments.

Future Outlook and Share Price Movement

Looking ahead, Walmart has set a conservative growth outlook, expecting net sales to rise between 3% and 4% in FY26. The management indicated a continuation of their investment strategies into eCommerce and expanding their product assortment. Notably, they project adjusted EPS to be in the range of $2.50 to $2.60, considering a $0.05 headwind from currency fluctuations. With an average analyst target price of $106.93, Walmart's current trading level around $104 seems positioned for slight upward movement, backed by strong fundamentals despite the looming currency headwinds.

Over the past ten days, Walmart's share price has fluctuated slightly, indicating market responsiveness to recent earnings news. The price movements suggest a stable investor sentiment, reflecting confidence in Walmart's strategic direction, albeit cautious regarding ongoing foreign exchange challenges.

Conclusion

In summary, while currency fluctuations have indeed posed challenges to Walmart's earnings by impacting sales and operating income, the company's strong market position, coupled with strategic growth initiatives, mitigates these risks to some extent. Investors should focus on Walmart's adaptability to economic pressures, its eCommerce growth trajectory, and sustainable profitability to inform their investment decisions going forward. Monitoring economic indicators, currency trends, and the effectiveness of Walmart's strategies will be critical in gauging the company's future performance amidst a dynamic retail landscape.