Walmart (NYSE:WMT) is just a few days away from reporting some potentially blowout sales results. The world's biggest retailer entered the holiday quarter with strong momentum thanks to high demand at stores and in its e-commerce segment.

Wall Street is predicting that the good times lasted into the fourth quarter, but the outlook gets cloudier from there. Let's take a closer look at the report set for Thursday, February 18.

A grocery store aisle.

Image source: Getty Images.

Meet in the middle 

Walmart's growth rate hasn't been as impressive as its peers' in recent months, but that's partly thanks to a massive annual sales base that's now higher than $550 billion. Wall Street will be judging its performance against that of Target (NYSE:TGT), which recently announced a 12% spike in the core U.S. market. Costco's (NASDAQ:COST) December sales were up a blistering 11%, too. Those figures suggest a healthy retailing niche for Walmart, even though its comparable-store sales gains slowed last quarter to 6.4% from 9.3%.  

The retailer should announce booming results from its digital division. Look for continued progress winning market share in consumer discretionary categories like home furnishings. But Walmart might have ceded ground in the grocery department to rival Kroger (NYSE:KR). The supermarket giant in early December announced an 11% Q3 sales spike.

Cashing in

The earnings outlook is bright for two main reasons: the tilt in demand toward high-margin products like home furnishings, and rising profitability in the e-commerce segment. These trends helped lift adjusted operating income by 16% last quarter and likely played an even bigger role supporting earnings over the holiday shopping crush.

WMT Cash from Operations (TTM) Chart

WMT Cash from Operations (TTM) data by YCharts

Success here boosts shareholders' returns in a few ways. Walmart resumed stock repurchase spending last quarter, for example, thanks to its gushing cash flow. Another period of strong and steady demand likely convinced CEO Doug McMillon and his team to keep those buybacks going in Q4. It would also give executives room for a significant dividend increase. A year ago Walmart lifted its payout by a scant 2%, but this year's increase -- its 48th consecutive annual raise -- should be bigger.

Looking ahead

Management avoided issuing a detailed financial outlook in 2020, citing risks around COVID-19 outbreaks and economic growth. But we're still likely to get some idea about what to expect this year from the retailer.

Heading into the report, most investors who follow the stock are predicting a modest sales slowdown overall. But within that stable result there will be some big swings.

Demand for staple products like cleaning supplies won't see a repeat of last year's surge, after all. But Walmart is expecting higher average spending per shopper visit, along with continued robust gains in its e-commerce segment.

That positive outlook, plus the potential for gushing direct cash returns in the form of dividends and buybacks, should keep investors happy to hold the stock right now. Yes, the end of the COVID-19 pandemic will remove a few tailwinds from the sales and earnings metrics. But Walmart's business is as strong as ever heading into the new fiscal year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.