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Walmart (WMT -7%) is heading lower after reporting Q4 (Jan) results this morning, but it regained some ground during the call. The retail giant beat on EPS and revenue, but just barely on both measures. This was its smallest EPS upside since Q3 of last year. More troubling was the Q1 (Apr) and FY26 EPS guidance, both of which were well below analyst expectations. It also guided to Q1 and FY25 CC revenue growth of +3-4% for both periods whereas FY25 CC revenue growth was +5.6%. WMT also increased its quarterly dividend by 13% to $0.235/share.

• Its Walmart US segment performed well with comps (ex fuel) up +4.6%, down a bit from +5.3% in Q3, but up from +4.2% in Q2 and +3.8% in Q1. Comp growth was led by transaction counts and unit volumes as well as share gains primarily from upper-income households. It saw broad-based sales momentum across merchandise categories and strong seasonal sales despite a compressed holiday shopping season.
• Grocery remains a standout category for this segment, with mid-single digit growth. It also saw mid-teens growth in health and wellness due largely to GLP-1 sales, which contributed about a point to the segment comp. Like-for-like pricing in general merchandise and consumables was deflationary, while food remained inflationary in the low single digits. WMT is seeing higher engagement across income cohorts with upper income households continuing to account for the majority of share gains.
• Sam's Club US comps (ex fuel) were even more impressive, coming in at +6.8%, down slightly from +7.0% in Q3, but up from +5.2% in Q2 and +4.4% in Q1. WMT cited strong growth across club and digital channels, led by food and health & wellness categories. It saw share gains in grocery and general merchandise categories, including apparel and consumer electronics. Membership and renewal rates at Sam's Club are at all-time highs.
• The company does not provide comps for its Walmart International segment, but sales declined 0.7% to $32.2 bln. The silver lining was that it grew +5.7% CC. Growth in CC sales was led by China, Walmex, and Canada with transaction counts and unit volumes up across markets. Growth was impacted by the timing of Flipkart's The Big Billion Days event, which pulled sales into Q3 from Q4.
• WMT touched on why guidance was weak on the call. Its outlook assumes a relatively stable macro environment but acknowledges that there are still uncertainties related to consumer behavior and global economic and geopolitical conditions. Volatility and currency rates had a meaningful impact on last year's results. The Q1 EPS guidance of $0.57-0.58 includes a FX headwind of $0.02 per share and a higher effective tax rate vs last year.

Overall, Walmart has been on a glide path upward over the past year with several impressive results and comps, partly fueled by its relatively high exposure to less discretionary items like groceries. However, this guidance spooked investors and has prompted some investors to book some of the significant profits they have gained in recent months. In fairness, a good chunk of the guidance shortfall seems to us like WMT is just being conservative. They cited uncertainties, which is a bit vague and did not cite definitive changes in consumer behavior. The +4.6% Walmart US comp and +6.8% Sam's Club comp gave us some reassurance. Also, FX headwinds are part of the weak guidance, which is out of WMT's control.