Walmart is thriving in grocery and attracting next generation consumers, despite the headwinds of tariffs, geopolitical strife and inflation, according to John Rainey, executive vice president and chief financial officer.
The Bentonville, Ark.-based retail giant is positioned to weather the increasingly challenging retail landscape, Rainey said at JPMorgan’s 12th Annual Retail Roundup on Wednesday.
“Wallets have been stretched,” he acknowledged. “If they get stretched further, people are still going to look for value. They’re still going to want to eat.”
And despite the massive selection of non-food merchandise the company offers, food sales are still the biggest part of Walmart’s business, Rainey said.
“Food is an enormous opportunity for us as we broaden our assortment there and being a foodie, it’s something I’m passionate about,” he said. “We can better serve the customer in many, many ways to where we are just more relevant overall with the consumer in the future than we are today.”
Walmart’s changing business model
Walmart’s business model has “fundamentally changed over the last decade” due to the retailer’s pivot toward ecommerce, which now represents roughly 20% of the company’s business, Rainey explained.
The retailer is growing operating income at roughly twice the rate of revenue in the high single digits, he said.
“What that allows us to do is participate in other profit streams like advertising, fulfillment services and many of these other things that are growing much faster and have higher margins,” Rainey explained.
Fuel price impacts
Consumers remain resilient despite high gas prices, according to Rainey, adding that tax stimulus “has had a bigger benefit than what we imagined” when the company released its most recent financial outlook in February.
In that FY27 outlook, Walmart estimated net sales growth of 3.5% to 4.5%, adjusted operating income growth of 6% to 8% and adjusted earnings per share of $2.75 to $2.85.
“Offsetting that, we did not expect to be at war at that point in time and certainly didn’t expect oil prices to get above $100 a barrel,” Rainey said. “It’s probably too early to provide a verdict on the impact of fuel prices because how high those go and how prolonged that is can certainly have an impact as you get into cost inputs like fertilizers and things like that, that can then bleed into food prices. So, we’ll keep an eye on that.”
Walmart maintains one of the largest trucking operations globally, and the company has suffered a fuel headwind in excess of $100 million over the last quarter, Rainey explained, adding that “we’re probably a long way before this bleeds into prices for us.”
He added, “We’re wired to keep prices as low as we can for our customers, so we’re going to continue to try to play offense and gain market share as we’ve done over the last year and be aggressive on price where we can.”
Ecommerce growth
Although Walmart’s ecommerce, advertising and fulfillment business is growing, its in-store sales still face challenges. Retail sales were flat in the third quarter and slightly negative in the fourth.
Asked whether it’s a concern for the company, Rainey replied: “I don’t want to be dismissive about flattish in-store comps, but I would actually describe myself as a little more agnostic about that because I think it is incomplete to look at in-store in isolation.”
He noted that brick-and-mortar locations also act as delivery nodes for customers that enable Walmart to deliver to 95% of households in less than three hours. Lower in-store comparables are only part of the picture, he said.
Walmart’s online marketplace, which enables third-party sellers to list products alongside Walmart’s own inventory (similar to Amazon’s model), is growing at an annual rate of about 20%, according to Rainey.
The retail giant offers about half a billion SKUs on its online platform, and that number continues to grow.
“During the holiday period, I think we had three times the number of sellers that we had versus a year before,” Rainey said. “And there are specific brands that we’re targeting. There are about 300 brands that we think of as must-have on our platform. We’re about halfway penetrated into that.”
International growth
Walmart also sees significant potential for international growth, particularly in Mexico and Canada, according to Rainey.
“We have relatively low ecommerce penetration in each of those entities, certainly in Mexico,” he said. “We’re taking the same plan that we had in the US and applying that to international entities, which give us a lot of opportunity.”
