Shares of Walmart (WMT) sank 10% last week and are extending their decline Monday after the company offered up some pretty weak guidance for the coming year. Given the state of the American consumer, it’s little wonder.
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US Consumer Sentiment Falls
Firstly, consumer sentiment is struggling to hold up in the face of tariffs, a Federal Reserve that is in no rush to cut rates and a lackluster macro-economic backdrop.
On Friday, growing concerns about the health of American shoppers were dealt a fresh blow as the University of Michigan’s consumer sentiment index fell almost 10% last month to 67.8, the weakest reading since July. Add to this some new worries about inflation and there is good reason consumers are feeling less inclined to feel upbeat.
Year-ahead inflation expectations jumped from 3.3% last month to 4.3% this month, the highest reading since November 2023. It’s only the fifth time in 14 years that there has been such a large one-month rise. Five-year inflation expectations rose from 3.2% in January to 3.5% in February, the highest in 30 years and the largest month-over-month increase since May 2021.
Rich Americans Matter
All of which is leaving the majority of consumers feeling the pinch since there is an increasing bifurcation among consumer spending.
The top 10% of earners account for 49.7% of all spending, a record in data going back to 1989, according to an analysis by Moody’s Analytics. Reporting the findings, the Wall Street Journal notes that 30 years ago the figure was just 36%.
Apparently, high earners increased their spending by 12% in the year to September 2024, while spending by low-income and middle-class households actually dropped.
Against this trend, it seems little wonder WMT guided for slower revenue growth in 2025 than had been expected previously.
Walmart forecast annual net sales to rise in the range of 3% to 4% in the current Fiscal year, compared with analysts’ expectations of 4% growth, as economic uncertainty left the company cautious and viewing the consumer as becoming increasingly fatigued.
Retailers at the lower end are struggling – Kohl’s (KSS) and Dollar Tree (DLTR) are closing stores with both seeing their market capitalization cut in half in the last year. Big Lots (BIGGQ) filed for chapter 11 bankruptcy last year. WMT’s growing online and subscription businesses are helping to offset some weakness in the core retail business, but with consumers looking weaker it will need them.
Is WMT a Good Stock to Buy?
Overall, Wall Street has a Strong Buy consensus rating on WMT stock, based on 28 Buys and one Hold. The average WMT price target $112.33 implies about 21% upside from current levels.
