3 Things I'll Be Watching in Walmart's Upcoming Earnings Report (and 2 I'll Ignore)

We may be well into earnings season, but we haven't heard from every noteworthy name just yet. Mega-retailer Walmart (NYSE: WMT) is slated to report its fiscal first-quarter numbers on Thursday morning, offering a glimpse into consumers' current psyches and buying power.

I'm not as interested in the most-watched quarterly numbers this time around. I'm sure they'll be pretty good -- but not great -- and more or less in line with estimates.

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Rather, I'm watching three other pieces of information that will provide a much better picture of how the company's doing in this tricky environment. These three data nuggets are also better barometers of Walmart's longer-term health than the more-touted quarterly numbers are.

Here's what I'm watching, and why.

Image source: Getty Images.

3 pieces of data tell the part of the story that matters most

For the three-month stretch ending in April, analysts expect Walmart to report earnings of $0.58 per share on sales of $164.5 billion. That's a 2% improvement on the year-ago revenue figure of $161.5 billion, but rising costs will likely drag the bottom line down from a per-share comp of $0.60. U.S. same-store sales growth also likely slowed a bit from the fourth quarter's pace of 4.9%, reflecting the broader effect of lingering inflation and fresh economic uncertainty on consumer spending.

None of these numbers is a key concern of mine right now, however. They'll only be a snapshot of how the world's biggest retailer has been affected by unexpectedly sudden and steep import tariffs that should (hopefully) soon be under control. Indeed, as Walmart CFO John David Rainey conceded in April, "[O]perating income has been harder to predict and we've widened our internal range of [profit] scenarios" thanks to tariff uncertainty. If the company isn't quite sure where the bottom line is headed, neither investors nor analysts will want to count on any particular figure. Sales aren't etched in stone, either.

Rather, there are three other metrics I believe mean much more to long-term investors.

The first metric is the growth of Walmart's retail media business. You know it better as "advertising."

If you've ever shopped at Walmart.com, you might have noticed advertisements on each page you navigate. These aren't just efforts from Walmart to induce a purchase. These ad placements are being paid for by the brands that Walmart sells. We won't hear a specific number -- just a percentage change, probably somewhere in the mid-20-percent range (plus a specific percentage-change figure for its U.S. online-shopping business). For perspective, Walmart did $3.4 billion worth of worldwide advertising business last year, up 28% year over year.

That's only a drop in the bucket compared to Walmart's total revenue. But for a company that only produced $27.1 billion in operating income and $15.5 billion in net income for the entirety of last year, this high-margin advertising business is actually a major contributor to the bottom line.

The second issue is last quarter's cost of goods sold and operating costs, like administrative expenses and selling payroll.

Most of last fiscal quarter's sales came from goods that would have been purchased prior to any tariff-induced price increases. We could have seen some hint of these price hikes by April, though. Walmart's aiming to abate as much of this effect as it can. It remains to be seen how much it can, or even if it's starting to become a problem yet. The benchmark here is somewhere in the ballpark of the prior quarter's gross margin rate of 24%.

As for selling and administrative costs, Walmart's been adding automation to its supply chain for the past couple of years, with the ultimate goal of cutting its online-order-fulfillment costs by 30% by the end of this year. In-store payroll and administrative costs are likely to remain relatively static, so it'll be interesting to see how much net benefit this added efficiency will actually provide. The company's fourth-quarter operating expenses were a hair over 20% of sales, roughly in line with the full-year number.

It matters because retailers' profit margins are always under pressure, but particularly so right now against a backdrop of higher import tariffs. At the very least, we'll want to see spending growth not exceed revenue growth before any tariffs take full hold.

Finally, I'll specifically want to know how well Walmart's e-commerce arm is growing.

You won't get a specific number here either -- just a comparison expressed as a percentage. For perspective, however, the prior quarter's online sales improved 16% overall, and 20% within the United States, where most of its online sales are made. That's a measurable slowdown from the third quarter's respective growth paces, as well as last year's first- and second-quarter online sales growth rate.

Although the bulk of Walmart's business is still done in-store, the company's now doing over $100 billion worth of annual online business. That's about 15% of last year's total top line of $681 billion. E-commerce is the company's biggest growth engine right now, however, so if it's slowing down, it could take a sizable toll on Walmart's overall forward progress.

Think bigger-picture

There's no assurance that other investors will be keying in on this data from Thursday's report. Indeed, it's likely they won't. The market will probably initially push Walmart stock higher or lower based on its well-watched revenue and earnings data, as it typically does.

Just don't read too much into any such move. It's apt to only be a short-term response to numbers that are being temporarily skewed (and not necessarily for the worse) by tariff-prompted turbulence. RBC Capital Markets says Walmart is better equipped than its competitors to handle whatever tariff-related challenges await, thanks to its sheer scale and operational adaptability. That just means any trouble that might become apparent on Thursday is also apt to be unwound pretty quickly.

Any initial post-earnings move from this stock should ultimately give way to the bigger-picture undertow illustrated by the aforementioned metrics. They paint a clearer picture of how the world's biggest retailer is actually navigating the current economic environment.

If you're looking to make a pre-earnings bet, I'd lean more toward owning Walmart stock than not. Most of any short-term tariff-related trouble is likely already priced in, setting the stage for the operational and cost-control resilience that RBC sees to be thrust into the spotlight. If that's the wrong call, it's still only apt to be a short-term setback.

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