Will Walmart's Foray Into AI Boost Earnings Again

Market confidence is looking to be restored this retail earnings season, with a focus on the continued growth of America's largest grocery and merchandise retailer.

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In its last quarter, Walmart saw its share price increase following a 22% rise in profits and a 6% increase in sales. Investors welcomed the company's ability to improve profit margins. Higher profits were driven by new business lines, such as the BetterGoods brand targeting affluent customers and recovered general merchandise sales, which typically have higher margins.

In the earnings call, management discussed some of Walmart's fastest-growing segments: advertising and data ventures. Global ad revenue jumped 24%, following a strategy announced one year ago to leverage AI for automated supply chain management. However, Walmart also possesses valuable customer data from stores and omnichannel sales, making it well-positioned for advertisers. The CEO reported that Sam's Club's ad business grew its customer base by 30% over the last year.​

Key Focus Points for Earnings

Walmart's earnings per share (EPS) is expected to rise to $0.64 from $0.56 in the prior year, with sales projected to improve sequentially to $168.5 billion from $161.5 billion in the first quarter. However, analyst sentiment toward the retail giant has softened in recent months as its stock price has climbed approximately 30% year-to-date (YTD). A potential earnings miss, especially if future guidance disappoints following a beat last quarter, could trigger Walmart's share price to adjust downward to align with EPS growth trends.

Previously, management expressed optimism that Walmart may surpass its own guidance. This could lead some investors to expect an upgraded forecast. Given recent mixed economic indicators, the market may be sensitive to any signs of slowing foot traffic perceived by the largest grocer. Such a development could impact stocks beyond Walmart as it serves as a proxy for consumer sentiment.​

Walmart Shows Head and Shoulders Pattern

Walmart stock has formed a head and shoulders pattern, where the distance between the head and neckline projects downside pullbacks typical post-pattern completion. If the $70 fails to form resistance, a break below the $65 neckline support could see the stock decline to $60 per share. Conversely, a move above $72 per share may invalidate the pattern formation, resulting in a flag pattern instead, with a potential upside to a measured target of $76 per share.​

Source: SpreadEx / Walmart

Key Takeaways

Investors welcomed Walmart's improved profit margins last quarter as they showed continued growth, with profits up 22% and sales increased by 6%. Higher profits came from new business lines and recovered merchandise sales. Management discussed fast-growing ad and data ventures, with ad revenue up 24% using AI. Walmart's customer data positions it well for advertisers, but will it please investors again?