Walmart’s shares fell by 2.3% after the company reported earnings that were below expectations. They announced earnings per share (EPS) of $0.68, missing the forecast of $0.74. However, revenue came in higher than expected at $177.4 billion, compared to the projected $176.2 billion. Operating income dropped by $0.7 billion, or 8.2%, mainly due to costs from legal issues and restructuring. Despite these setbacks, Walmart has increased its forecast for the next fiscal year. They expect revenue growth of 3.75% to 4.25% and anticipate EPS to rise from $2.52 to $2.62. Walmart’s earnings announcement did not mention tariffs, but more information was expected from CEO Doug McMillon during a conference call set for 1200 GMT. The initial 2.3% drop in Walmart’s stock seems like an overreaction to the EPS miss. The company reported strong revenue, and importantly, their positive outlook for the year indicates that the business is in good shape. The decline in operating income seems to be due to temporary charges for legal and restructuring costs, not because of a slowdown in core business. This might be a chance to consider bull put spreads or buying calls, especially since recent government data shows retail sales grew by a steady 0.4% last month. We saw a similar situation in late 2023 when optimistic guidance led to a rally after a mixed earnings report. Implied volatility is probably high right now, but the real test will come during the upcoming conference call. The CBOE Volatility Index (VIX) is currently around a calm 16, which suggests that buying straddles might be wise if we think CEO Doug McMillon will share unexpected news about supply chains or consumer behavior. This strategy benefits from significant price movements in either direction, which might not be fully accounted for in current options pricing. For more cautious investors, the EPS miss shouldn’t be overlooked, as it could indicate pressure on profit margins. The latest consumer confidence index dropped slightly to 101.5, suggesting that consumers are still being careful with their spending. Buying puts with a short-term expiration could serve as a low-cost hedge against any negative surprises from the conference call.

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