Walmart’s Q4 earnings got a cool reception on Wall Street last week after the retail giant issued a lower-than-expected 2025 sales guidance. The company forecast that net sales would increase 3%–4% this fiscal year, compared to 5.1% growth in 2024.
As CFO John David Rainey noted in an earnings call, sales have shifted out of higher-margin discretionary categories and into grocery and health and wellness products, “as consumer wallets have been stretched over the past couple of years.”
Despite these headwinds and its more conservative guidance, Walmart emphasized that investments in technology, supply chains, and revenue diversification are setting the company up for success in the long-term.
“We’re growing profit faster than sales, and we have runway to scale our higher-margin businesses like membership, marketplace, and advertising,” CEO Doug McMillon said. “We’re mixing ourselves up, while simultaneously investing in lower prices and associate wages.”
Mixing it up: The upside of this “mixing” is that Walmart is increasingly generating income from revenue streams other than sales, generating more than half of the operating income growth in Q4.
Rainey broke it down: In 2024, global advertising revenue grew 27%; Walmart US Marketplace revenue grew 37%; and global membership income grew 21%.
“Over our planning horizon, the growth of this portfolio is expected to be one of the largest drivers of operating income growing faster than sales,” he said. “These new profit streams allow us to fund investments in our core business while also expanding our operating margins.”
Some of these alternative revenue streams are feeding into each other: Walmart Connect, a retail media advertising platform, grew 24% in the US last year. Now the company is trying to increase the number of third-party marketplace sellers that use the service, building on a 50% increase in seller advertising in 2024.
The value of convenience: When pressed in the Q&A about whether Walmart was becoming less insulated to global macroeconomic trends, Rainey stressed that the retailer’s value proposition is more than pricing. “We’re not just known for value. We’re also increasingly known for convenience,” he said.
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Throughout the call, Walmart executives pointed to examples of increased convenience around delivery speeds. In addition to the recent launch of same-day pharmacy delivery, Walmart is speeding up deliveries by taking cues from one market in particular
“We’re taking learnings from markets like China and quickly standing up fast delivery solutions in other markets,” McMillon said, adding that it would share more about its investments in supply chain automation at its investor conference in April.
Rainey pointed out that 30% of delivery orders come from customers that have paid a convenience fee in order to receive their package within hours.
Wally world: Walmart also made sure to touch on everybody’s favorite topic: the rise of artificial intelligence.
“These past few quarters, we’ve talked about how we’re using AI,” McMillon said. “The progress we’ve made over the years with technology has put us in a position to leverage today’s fast-moving capabilities closer to real time.”
One example is a new AI agent for merchants called Wally that is designed to help understand the cause of issues such as overstocks and out-of-stocks with more speed and accuracy. Another is a suite of tools designed to provide coding assistance to employees to save developer hours.
“I can see us getting faster,” McMillon said.
The bottom line: Yet for all these shiny new features, ROI is still top of mind for Walmart. Executives stressed multiple times that its investments are paying off.
“We’re able to improve ROI even as we invest higher levels of capital to take advantage of the opportunities we see to strengthen the company,” McMillon said.
The return on $23.8 billion in capital investment increased 50 basis points to 15.5%, Rainey explained, which is the highest level since 2016. That level of steady investment is expected to continue this year.
“We expect [capital expenditure] to range between 3% and 3.5% of sales, as we invest in technology to optimize our supply chain, remodel stores and open new stores and clubs in both the US and certain international markets,” Rainey said.