Walmart Stock Falls 1.4% on Solid Earnings and Cautious Guidance

On Feb. 19, Walmart (NASDAQ: WMT), reported earnings for its fiscal fourth quarter and full year (fiscal year ended Jan. 31, 2026). The company's earnings report had some good news and signs of caution for investors in the world's largest retailer.

The company reported quarterly revenue of $190.7 billion, up 5.6%, driven by a 24% increase in global e-commerce sales. Adjusted earnings per share were $0.74 for the quarter, which beat analysts' expectations by $0.01, and $2.64 for the fiscal year.

But Walmart's guidance for its new fiscal year might be weighing down investor sentiment. The company expects revenue growth of 3.5%-4.5% in fiscal year 2027 and adjusted earnings per share of $2.75-$2.85. Those figures are lower than analysts' estimates -- Wall Street had predicted an average of 4.8% sales growth and $2.98 of adjusted earnings per share for Walmart's year ahead.

By the end of the day it reported earnings, Walmart's share price was down about 1.4%.

Let's look at a few reasons why Walmart shares might be at risk of further declines.

Walmart's lower-income consumers are struggling

Known for its low prices, Walmart might be the one retailer that gives the best window on what's happening with the household balance sheets of millions of American shoppers.

On its latest quarterly earnings call, the company's president and CEO, John Furner, said U.S. customers are being "choiceful in their spending." The company saw most of its quarterly share gains from people with households earning more than $100,000, and Furner said that "For households earning below $50,000, we continue to see that wallets are stretched."

If unemployment rises and lower-income households cut back on discretionary spending, this could put pressure on Walmart's core customer base.

Future-year guidance is meant to be "prudent"

If analysts were surprised by Walmart's cautious earnings guidance, the company executives seemed to try to put any concerns to rest. John David Rainey, Walmart's executive vice president and chief financial officer, said that the company is "overall constructive on the economy" and that "our goal is to outperform this guidance."

Image source: Getty Images.

But he mentioned a few risks like a possible hiring recession, lower consumer sentiment, and higher student loan delinquencies that could weigh on retail sales growth. Rainey said, "We believe it's prudent to start the year with a level of conservatism given the backdrop is still somewhat unstable."

Does this mean that Walmart stock should be rated a sell? Not exactly. The company is doing some intriguing things to try to compete with Amazon (NASDAQ: AMZN) in e-commerce, and it achieved 46% annual growth in its global advertising business. Its membership fee revenue (such as Sam's Club and Walmart Plus memberships) grew 15.1% globally in the most recent quarter. And its logistics, inventory management, and supply chain operations are some of the best in the retail industry.

But Walmart is an already massive company that might not grow fast enough to justify its high valuation. Its price-to-earnings ratio is 44.3, higher than the P/E ratios of the tech-heavy Nasdaq-100 index (34.4) and the S&P 500 index (27.6). Investors might want to hold off on buying this stock.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.