Walmart & Retail Sector Earnings Loom: A Closer Look

Walmart WMT shares have been standout performers this year, handily outperforming not just the broader market indexes and peers like Target TGT but also the likes of Amazon AMZN and most of the Magnificent 7 group members.With the company set to report quarterly results on Thursday, May 15th, it will be interesting to see if the stock can maintain its performance momentum after the results. Walmart shares were down following the last quarterly release on February 20th, which followed four back-to-back quarterly reports that had generally been received favorably. Target is scheduled to report results on May 21st.The chart below tracks the year-to-date performance of Walmart shares (up +7.2%) relative to the S&P 500 index (-4.3%), Amazon (-12.3%), and Target (-28.6%).Image Source: Zacks Investment ResearchWalmart will kick off the Q1 reporting cycle for the ‘conventional’ retailers this week, with the rest of the group coming out from the following week onwards.The Walmart report will set the tone for the rest of the retail space, as it will not only give us a good sense of the impact of the new tariff regime and broader consumer spending trends. Management touched on some of these trends in its April 9th investor day event, noting some near-term tariff-related challenges.While they acknowledged some near-term challenges as a result of the uncertain macro environment, they remain confident of achieving long-term plans and targets, including sales growth of at least +4% and operating income growth above the sales growth pace. Walmart has been coming ahead of its target over the last two years, with sales up +5.5% and operating income up +9.5%.Management noted that roughly two-thirds of U.S. sales are from domestically-sourced products, which gives them a degree of insulation from the tariffs issue compared to others. A big part of this is Walmart’s groceries business, which accounts for almost 60% of its sales, unlike Target, where groceries are a much smaller part of the revenue mix. Management indicated their commitment to maintain price advantage over rivals, a function of Walmart’s size, the nature of its supplier relationships, and the increasing automation of its logistical operations. Walmart’s value orientation and well-executed digital strategy have been key to gaining grocery market share by attracting higher-income households.Walmart’s growing e-commerce isn’t just a means to attract higher-income households, but also opens up avenues for other higher-margin revenue streams like advertising and third-party fulfillment. The e-commerce business in the U.S. is now profitable, and management sees it as a significant earnings contributor for the year. E-commerce accounts for an estimated 15% of total ex-gasoline sales at present, which management sees eventually increasing to more than double that level over time.Walmart is expected to report $0.58 in EPS on $165.6 billion in revenues, representing year-over-year changes of -3.3% and +2.5%, respectively. While the EPS estimate aligns with management’s original guidance of 57 to 58 cents per share, we should note that it was not reaffirmed at the April 9th event, and estimates have modestly come down since the quarter got underway.Management had noted a less favorable business mix for the quarter, with the general merchandise business getting off to a weak start, but trends improving later in the quarter. A positive general merchandise read will also have positive read-throughs for Target. Same-store sales (ex-fuel) are expected to be up +3.21% for the quarter, compared to +4.9% in the preceding period (vs. expectations of +4.36%).Concerning the Retail sector 2025 Q1 earnings season scorecard, we now have results from 20 of the 33 retailers in the S&P 500 index. Regular readers know that Zacks has a dedicated stand-alone economic sector for the retail space, unlike the placement of the space in the Consumer Staples and Consumer Discretionary sectors in the Standard & Poor’s standard industry classification.The Zacks Retail sector includes Walmart, Target, and other traditional retailers, online vendors like Amazon AMZN, and restaurant players. The 20 Zacks Retail companies in the S&P 500 index that have reported Q1 results already belong primarily to the e-commerce and restaurant industries, though we have several restaurant companies on deck to report results this week as well.Total Q1 earnings for these 20 retailers that have reported are up +20.2% from the same period last year on +6.9% higher revenues, with 55% beating EPS estimates and only 45% beating revenue estimates.The comparison charts below put the Q1 beats percentages for these retailers in a historical context.Image Source: Zacks Investment ResearchAs you can see above, the EPS and revenue beats percentages for these online players and restaurant operators are tracking significantly below the historical averages for this group of companies.With respect to the elevated earnings growth rate at this stage, we like to show the group’s performance with and without Amazon, whose results are among the 20 companies that have already reported. As we know, Amazon’s Q1 earnings were up +42.6% on +8.6% higher revenues, beating EPS and top-line expectations.As we all know, the digital and brick-and-mortar operators have been converging for some time now. Amazon is now a decent-sized brick-and-mortar operator after Whole Foods and Walmart is a growing online vendor. As we noted in the context of discussing Walmart’s upcoming results, the retailer is steadily becoming a big advertising player thanks to its growing digital business. This long-standing trend got a massive boost from the COVID-19 lockdowns.The two comparison charts below show the Q1 earnings and revenue growth relative to other recent periods, both with Amazon’s results (left side chart) and without Amazon’s numbers (right side chart).Image Source: Zacks Investment ResearchAs you can see above, earnings for the group outside of Amazon are down -6.3% on a +5.4% top-line gain, which points to margin pressures for the group.Key Earnings Reports This Week We have over 500 companies on deck to report results this week, including 11 S&P 500 members. In addition to Walmart, the bellwethers reporting this week include Cisco Systems, Applied Materials, Deere & Company, and China’s Alibaba.The Q1 Earnings ScorecardThrough Friday, May 9th, we have seen Q1 results from 452 S&P 500 members or 90.4% of the index’s total membership. Total earnings for these 452 index members are up +12.2% from the same period last year on +4.4% revenue gains, with 73.7% of the companies beating EPS estimates and 61.9% beating revenue estimates.The comparison charts below put the Q1 earnings and revenue growth rates for these index members in a historical context.Image Source: Zacks Investment ResearchThe comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.Image Source: Zacks Investment ResearchAs you can see here, the EPS and revenue beats percentages are tracking below historical averages, with the Q1 EPS beats percentage of 73.7% for the companies that have reported already comparing to the average for the same group of 78% over the preceding 20-quarter period (5 years). The Q1 revenue beats percentage of 61.9% compares to the 5-year average for this group of index members of 70.5%.Is the Turnaround in Estimates for Real?Looking at Q1 as a whole, combining the actuals from the 452 S&P 500 members with estimates for the still-to-come companies, the expectation is that earnings will be up +12.3% from the same period last year on +4.5% higher revenues, which would follow the +14.1% earnings growth on +5.7% revenue gains in the preceding period.The chart below shows current earnings and revenue growth expectations for 2025 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.Image Source: Zacks Investment ResearchWe noted in recent weeks that estimates for the current period (2025 Q2) have been coming down, with the negative revisions trend expected to accelerate further as companies report results and talk up the extent of uncertainty around their near-term business outlook.The chart below shows how expectations for the current period have evolved since the start of the year.Image Source: Zacks Investment ResearchThe magnitude of cuts to 2025 Q2 estimates since the start of the period is bigger and more widespread relative to what we have become used to seeing in the post-COVID period. But we are starting to notice a curious development with the Tech sector estimate, both for Q2 as well as full-year 2025.The chart below shows how Tech sector earnings estimates for the period appear to have bottomed two weeks back and have, in fact, actually started going back up.Image Source: Zacks Investment ResearchWe see this same trend at play in annual estimates as well. The chart below shows the Tech sector’s evolving earnings expectations for full-year 2025.Image Source: Zacks Investment ResearchAs favorable as this development on the revisions front is, we are hesitant to claim that the process of downward adjustments to estimates has run its course. After all, it is possible that analysts had ended up cutting estimates more than what was needed after the April 2nd tariff announcements.The subsequent management commentary on the Q1 earnings calls may have made analysts realize this reality, and this modest uptick in estimates is a result of that realization. That said, if the trend continues for a few more weeks, it will be hard to interpret this development any other way than a clear sign that the earnings picture has clearly stabilized and started to strengthen.The chart below shows the overall earnings picture on a calendar-year basis.Image Source: Zacks Investment ResearchEstimates for full-year 2025 have also come under pressure in recent weeks, with the negative revisions trend becoming very meaningful and widespread since mid-February 2025. But the upward revisions to Tech sector estimates is starting to show up in full-year estimates, causing a reversal in the negative revisions trend, as the chart below showsThe chart below shows how full-year 2025 earnings growth expectations have evolved in recent weeks.Image Source: Zacks Investment ResearchFor more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>>Tech Earnings Estimates Increase Again: What’s Going on?Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Target Corporation (TGT): Free Stock Analysis Report Walmart Inc. (WMT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks