Issue #38: Walmart’s Up and Down Earnings

Wall Street certainly can be a tough crowd sometimes, albeit with good reason. Fractions of a penny of a stock price can make a huge difference to the investor’s bottom line. This week Walmart, the world’s largest retailer, announced its Q4 earnings and commented on its 2025 outlook. The outlook was not exactly pretty, which was a suprise considering how strong the Q4 numbers were, which caused the stock price to plummet. However, Wall Street typically factors in prior and future performance into its guidance, which is why the stock plummeted about 8% after earnings came out. Let’s break down why investors are concerned, and if it is really a concern.

On the Q4 numbers, here are some of the highlights:

• Quarterly revenue increased 5.3% year over year to $182.6 billion

• Adjusted EPS was up 10% to $0.66

• Same-store sales for the US stores increased 4.6% in the quarter

• US e-commerce sales jumped 20% year over year, fueled by an increase in in-store pickup and delivery (For more on mobile, BOPUIS check out Issue #37)

• Sam's Club revenue was up 5.7%

• International revenue 0.7% (potentially under-discussed cause for concern)

On its surface, some pretty strong metrics. However, the forward-looking guidance was not as rosy:

• Walmart put out a more conservative guidance for next fiscal year sales of 3-4%, compared to this year’s ~6% growth

• They are expecting prices to rise

• Profit is expected to rise, just not as much as this year

As you can see, the list of concerns is not as much as the benefits, but that is sometimes how it works with the public markets. Most of the concern is around a correction, rather than the actual negativity. The markets are still rewarding Walmart for being a strong company, it is just a correction for less growth. Still, given how big Walmart is from a revenue perspective, a couple of percentage points is still tens of billions of dollars, so not too shabby. In my opinion, any growth is good growth. Plus, interestingly, despite the public market’s lack of confidence, the bond markets are loving Walmart. Walmart’s debt saw net buying post earnings, which illustrates a strong market perception of Walmart. Like anything in retail, it is always multi-faceted, with different opinions, but I am confident Walmart will have a strong 2025 as customers continue to resonate with its value.

Nike Launches Partnership With Skims

Move over Starbucks, you are not the only legacy company with a new CEO and an attempt to return to its roots. Nike made its mark on the sporting goods industry by becoming an iconic brand that was everywhere, and everyone wanted to wear it. Plus, retail was a big part of the strategy, with people lining up for hours to get the latest shoe drops. However, in the last fiveish years, Nike moved away from investing in the brand and retail, and instead focused on D2C, which did not work. As chronicled in other issues, this strategy allowed newcomers like Hoka and On to break onto the scene. Still, that didn’t deter Nike and now Nike is punching back. Throughout the Super Bowl week, there were plenty of large brand campaigns trying to make Nike cool again. Now Nike is trying to expand that brand awareness with cool partnerships, with Skims, the athletic apparel brand founded by Kim Kardashian. Together, the joint venture will launch new brands under the NikeSKIMs umbrella. Notably, in the press release, a retail launch is mentioned before the eCommerce launch. Investing in the brand, cool partnerships, and retail focus. Is Nike back? I think so.

SoHo House Struggles With Next Step

Founded in 1995 in London, SoHo House has expanded its membership platform to include 40+ clubs and restaurants all over the world. After 25 years in the private markets, in 2021 SoHo House went public, and the troubles have started since then. Unfortunately, in 2022, the original founder had to step down due to health reasons. In 2024, the company lost about $70M, another year of not making profits. Now, it is the subject of rival bids from activist investors to try and take the company private. Still, there is much work to be done to turn SoHo House around. According to members, the experience is not worth the subscription and for a club built on experiences, that is not great. To turn around the club, whoever needs to take it over will need to focus on experiences primarily.

Sprouts Continues Rapid Expansion

Sprouts Farmers Market, the supermarket chain, has been on a rapid expansion tear. Founded in the 1940s in San Diego, now HQ’d in Arizona, the chain focuses on natural, organic, and bulk foods. As someone who grew up on the East Coast, I hadn’t had much exposure to Sprouts and am excited to try it out as the expansion continues. What makes customers like Sprouts? Aside from the products, their private label has been growing and now they are launching a loyalty program on top of that. This playbook has grown the total stores to 440 across 24 states, with 33 opened in 2024 and 35 planned to open in 2025. With Whole Foods struggling since the Amazon acquisition with its market poised, Sprouts is poised to make moves in a big way.

Mr. Beast Burger Launches in Germany

Popular Youtuber creator Mr. Beast has done business ventures across the globe from candy bars to partnerships with Amazon Studios. Most of it has gone well, but one that has stood out for not working out great was the Mr. Beast Burger. Mr. Beast Burger was a virtual brand carrying burgers and other things that were licensed to ghost kitchens and restaurants. In addition to the physical locations (which were mostly able to avoid these issues), the virtual locations were plagued with quality issues, which ultimately led to their very public shutdown. However, it seems like that was not the end of Mr. Beast Burger as it seems. This week, I came across a Linkedin post talking about the launch of Mr. Beast Burger in Germany. In partnership with Just Eat, it has launched in 10 cities at a total of 20 stores, with 100 more to be launched by the end of the year. Can’t really say I ever thought it would come back as a virtual brand, but will be interesting to follow along nonetheless.

Additional Links:

1. More retailers have closed recently than have opened, which begs the question, for large retail tenant holders how to shift the space to be more friendly to service-based businesses (restaurants, barbershops, etc.) (read more here)

2. PopUp Bagels announces expansion to Tampa, FL (read more here)

3. GameStop, the video game store, is planning on selling its France and Canadian assets (read more here)

4. Inspired by movie snack flavors, Krispy Kreme launched a partnership with Hulu for some special flavors (read more here)

5. Ikea plans on launching 8 new stores in the US this year (read more here)

6. Shake Shack is launching new innovation kitchen focused on process innovation rather than menu innovation (read more here)

7. Potbelly is seeing massive growth (read more here to see what is driving it)

8. Walmart and Amazon are investing in AI to boost efficiency (read more here)

9. Amazon 2024 Q4 revenue > Walmart Q4 2024 revenue (read more here)

10. MercadoLibre, the South American eCommerce platform, has passed 100M buyers (read more here)

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