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First a note from Profits Run
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Make sense?
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Good Trading,
Bill Poulos
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WMT Beat the Quarter. The Stock Didn't Care.
Hey there, bargain hunter. Walmart handed Wall Street a beat this morning and got a 9% haircut in return. Revenue of $187.9 billion topped the $186.8 billion estimate. Adjusted EPS of $0.81 crushed the $0.74 consensus by more than 9%. Full-year sales guidance moved higher. And the stock fell from $114.30 to roughly $104 anyway, its worst session in years and its lowest print since late last year.
If you want to understand what happens when a premium-multiple stock stumbles on one key metric, today is a masterclass. Let's get into it.
The Scoreboard
- Revenue: $187.9B vs. $186.8B estimate — up 5.9% year over year
- Adjusted EPS: $0.81 vs. $0.74 estimate — 9.3% beat
- U.S. comparable sales: +2.6% vs. ~3.5% to 3.8% expected — weakest pace in roughly six years
- Operating income: $9.4B, up 28.8%; adjusted constant-currency up 17.4% to $9.2B
- Global eCommerce: +23% globally; +24% in the U.S.
- Walmart Connect (ex-VIZIO): +43%
- Global ad revenue: +38%
- Marketplace sales: +52%
- Membership income: +17% globally; Walmart+ posted its best first half of membership growth in program history
- Free cash flow: $5.5B, down $1.4B year over year
- Q3 EPS guide: $0.62 to $0.64 vs. $0.66 consensus
- Full-year EPS guide: $2.80 to $2.87, raised from $2.75 to $2.85
A Beat That the Market Didn't Buy
Two numbers broke the trade. U.S. comparable sales of 2.6% came in roughly 90 basis points below what analysts expected, and it was the slowest comp growth since late 2020. Meanwhile, Q3 EPS guidance of $0.62 to $0.64 missed the $0.66 consensus. Together, those two data points outweighed everything else in the release.
There is context worth applying. The health and wellness category was hit by a federal Medicare drug pricing rule change, which CFO John David Rainey said created roughly an 80-basis-point drag on U.S. comparable sales. Strip that out and the underlying comp is closer to 3.4%. That's a more defensible number. Rainey was explicit that the profit impact was minimal: the health and wellness business remained profitable, just lower-volume on the top line.
But a stock priced at roughly 38 times trailing earnings heading into this report doesn't get the benefit of the doubt on adjusted comps. The market needs to see the clean number. It didn't get it today.
The $2.9 Billion Question
Here is where the earnings quality debate lives. Walmart received substantially all of approximately $2.9 billion in tariff refunds it was eligible for, following the Supreme Court's February 20, 2026 ruling that President Trump overstepped his authority in imposing sweeping tariffs under emergency law. The refunds flooded the income statement: operating income of $9.4 billion included a net benefit of approximately 750 basis points from those refunds alone.
Back those out and constant-currency adjusted operating income grew 17.4%, landing at $9.2 billion. That is still a strong number, and it is at the top end of the company's prior 7% to 10% guidance range. But the headline operating income figure is not repeatable in that form. Management said the financial impact from tariff refund receipts is expected to be largely contained within the current fiscal year. The Q1 FY2028 comparison will be tougher for it.
Gross margin in the U.S. segment expanded 158 basis points to 29.4%, driven primarily by the refund benefit and a shift toward higher-margin digital advertising. Price investments and fuel-related distribution costs partially offset those gains. The business underneath the refund is improving. That just isn't the same as the business including the refund.
Why Q3 Is the Number That Matters Now
Q3 EPS guidance of $0.62 to $0.64 missed the $0.66 consensus, and Q3 revenue guidance of $185.6 billion came in 1.4% below what analysts expected. That is the number driving the selloff as much as anything in the Q2 release itself.
Two things are compressing Q3 at the same time. First, Flipkart's Big Billion Days sale shifted between quarters, creating a headwind of more than 100 basis points to third-quarter sales growth. Rainey said the benefit of similar magnitude should flow back in Q4. Second, Walmart is reinvesting the tariff refunds it received in Q2 into price cuts and customer experience in the second half, which weighs on near-term profitability by design. That is a choice, not an accident.
Rainey explicitly asked investors to evaluate Q2 and Q3 together when assessing the underlying growth rate of the business. That is reasonable framing. It also means the Q3 comp recovery, expected when management guided for 3% to 3.75% sales growth next quarter, is the only thing that will prove or disprove the investment case from here.
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Inside the Business: What Is Actually Working
The structural growth levers inside Walmart are not in doubt. eCommerce grew 23% globally and 24% in the U.S. Marketplace sales grew 52%. Store-fulfilled delivery jumped 43%, with nearly 37% of those orders arriving in under three hours. Walmart Connect grew 43% excluding VIZIO. Global advertising revenue rose 38%. Membership income grew nearly 17% globally, with Walmart+ recording its best first half of membership growth ever. Walmart+ members spend roughly four times as much as non-members, per CFO Rainey.
Walmart also closed its acquisition of self-serve connected TV platform Vibe.co earlier this month, a deal reportedly valued at around $1.4 billion. Combined with the 2024 VIZIO acquisition, the company now controls the hardware, the operating system, and the retail shopping data needed to target ads across streaming inventory. The Vibe integration carries an approximately 20-basis-point headwind to operating income growth this year. The longer-term play is building a streaming ad business that can compete directly with Amazon.
Nearly half of Marketplace volume moved through Walmart Fulfillment Services during the quarter, up nearly 400 basis points from a year earlier. That matters because fulfilled marketplace orders carry better economics and build the flywheel that underpins the advertising business. The model is working. The question is whether 38x is the right price to own it while comps decelerate.
Is It Cheap?
Before today, WMT traded at roughly 38 to 40 times trailing earnings. That multiple has always required a growth justification. The bull case is clear: eCommerce, retail media, and membership are compounding at 20% to 40% annually, and those segments carry structurally higher margins than the core grocery business. Operating income grew faster than comparable sales this quarter at a rate management says hasn't been seen in two decades.
The bear case is equally clear. A 9% drop on a guidance raise signals the market was already pricing near-perfect execution. A 2.6% comp against a prior quarter of 4.1% is a meaningful step down, and the full-year EPS guide of $2.80 to $2.87 is below the $2.90 consensus that was already baked in before earnings. The analyst consensus target of $137 to $140 still implies 30% or more upside from Thursday's lows, but that math requires Q3 comps to recover and the ad flywheel to continue compounding. Neither is guaranteed.
After the selloff, WMT trades at roughly 38 times forward earnings. That is not cheap in absolute terms. It may be fair, if you believe the ad and membership margin mix keeps rising. It is expensive, if you think the comp deceleration is structural.
Bull, Base, Bear
- Bull: Q3 comps recover to 3.4% or better as price investment elasticity kicks in. The Flipkart calendar headwind reverses in Q4. Walmart+ and Walmart Connect keep compounding at double-digit rates. The market re-rates toward the $137 to $140 analyst target.
- Base: Q3 lands in line with guidance, 3% to 3.75% sales growth. Ad and membership mix continues rising. The tariff refund comparison becomes a headwind in early FY2028, but underlying operating income stays near the top of the 7% to 10% guidance range. Stock recovers to the $110 to $115 range over 6 to 12 months.
- Bear: Price investment elasticity doesn't show up in Q3 unit volumes. The comp miss repeats. The tariff refund distorts comparisons into FY2028 while free cash flow stays pressured by $2.8 billion in incremental capex. Stock grinds lower toward the 52-week low of $95.42.
What to Do With This
Jefferies analyst Corey Tarlowe and RBC Capital Markets analyst Steven Shemesh both held Buy ratings after the report. UBS analyst Michael Lasser maintained a bullish view while acknowledging the results would intensify valuation debate. The analyst consensus remains constructive. The average target of $137 to $140 implies significant upside from today's open.
For a bargain hunter, the entry question is simple: do you believe the ad and membership business is large enough, and growing fast enough, to justify owning the grocery business at 38x? If yes, the selloff opens a scale-in. If no, patience is free.
- Aggressive posture: Start a half-position at the $104 open. Add on a close above $108 on volume. Full position only after Q3 comps confirm the recovery.
- Conservative posture: Wait for the Q3 report in November. A comp at or above 3.4% is the signal the price investment strategy is working. Buy the confirmation, not the speculation.
- Already long: Hold. The business is not broken. The comp missed and the Q3 guide disappointed. Those are real problems at this multiple, but they are solvable in one quarter. Trimming into a 9% gap-down on a guidance raise is rarely the right move.
Cheap Investor Scorecard: WMT
- Revenue beat: Yes. $187.9B vs. $186.8B estimate.
- EPS beat: Yes. $0.81 vs. $0.74. But $2.9B tariff refund contributed roughly 750 basis points to operating income growth.
- Comp quality: Weak. 2.6% vs. ~3.5% expected. Slowest in six years. Medicare drag explains ~80bps. Core comp still decelerated from 4.1% last quarter.
- Guidance direction: Mixed. Full-year sales and EPS raised. Q3 EPS and revenue guided below consensus.
- Digital flywheel: On track. eCommerce +23%, marketplace +52%, Walmart Connect +43%, membership income +17%.
- Margin sustainability: Uncertain. Gross margin expanded 158bps, mostly from one-time refund and ad mix. Price investments create a deliberate Q3 headwind.
- Balance sheet: $11.5B cash, $57.2B total debt. Operating cash flow $19.7B year to date. Free cash flow down to $5.5B on $2.8B capex increase.
- Valuation vs. peers: Roughly 38x trailing vs. low-to-mid single digits for traditional grocery peers. Premium requires sustained digital compounding to hold.
- Analyst sentiment: Consensus Buy, targets $137 to $140. Multiple firms held ratings after the drop.
- Q3 catalyst clarity: High. Comp recovery by November is the binary that decides whether today's selloff was an overreaction or a warning.
Bottom Line
Walmart's core business is not broken. The ad flywheel is real. Marketplace, eCommerce, and membership are compounding at rates no traditional retailer can match. Operating income grew faster than comps at a ratio management says is unprecedented in twenty years. None of that changed today.
What changed is the market's willingness to pay 38x for a company that just posted its weakest comparable sales quarter since 2020, guided Q3 EPS below consensus, and reported a headline beat that relied in large part on a one-time $2.9 billion refund that will not repeat next year.
If Q3 comps recover to 3.4% and the price investment strategy shows up in unit volumes, the selloff will look like the discount. If Q3 misses again, today is the beginning of a longer multiple compression. Watch November. That is the only number that settles the argument.
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