Walmart Inc. (WMT) Earnings

Management highlights

### Overall Business Performance & Strategy - Delivered a strong second quarter that validated Walmart's connected omnichannel platform strategy, where core retail, marketplace, advertising, and membership businesses reinforce one another to drive improved overall company economics. - Gained market share broadly across the business, grew units and transactions, and reached an all-time high for membership fee revenue (up 17% globally). Walmart U.S. had its best Q2 performance in three years excluding pharmacy regulatory headwinds. ### Price Leadership & Customer Value - Executed over 11,000 price rollbacks in the U.S. during the quarter, up from 7,200 at the end of Q1, with most tariff refund funds invested in grocery and general merchandise price cuts. - Widened price gaps versus conventional grocers, with strong, durable share gains in food categories driven by these investments. ### Fulfillment Speed & Omnichannel Advantage - Expanded sub-30 minute delivery to 38 U.S. markets; U.S. fast delivery grew 48% year-over-year. Fast delivery customers shop more frequently and are more likely to become Walmart Plus members, expanding the number of shopping occasions Walmart serves. - Stores remain a critical omnichannel asset, serving as fulfillment nodes for 80% of U.S. e-commerce orders and 100% of fast deliveries, with more total unit volume moving through stores than ever before. ### Platform Scaling & Global Expansion - Scaled U.S.-built platform capabilities internationally: expanded Marketplace to Mexico and Canada, and launched Walmart Plus in Canada, enabling lower marginal cost growth as capabilities are built once and deployed globally. - Acquired ad tech firm Vibe to expand self-service advertising tools for small and medium-sized advertisers, strengthening Walmart Connect's value proposition by tying campaign results to real in-store shopping behavior. ### AI & Operational Improvements - Uses AI to enhance personalization and associate productivity; the AI shopping assistant Sparky now has 70% more users year-over-year, with Sparky users spending 40% more per order than non-users. - Supply chain automation and network densification improved inventory efficiency, in-stock levels, and delivery speed, with 3,100 U.S. stores now served by automated freight. ### Health & Wellness Business - While maximum fair price regulation created a 125 bps Q2 comp headwind, the business remains a strong profit contributor. Prescription volumes are growing, Walmart is gaining market share, and health and wellness customers spend 3x more than the average Walmart customer, with even higher spend among customers who use pharmacy delivery.

Guidance

- Raised full-year fiscal 27 enterprise sales guidance to 4-5% from the prior 3.5-4.5% range. The upward revision reflects stronger first-half performance and expected accelerated share gains from price investments, partially offset by a larger-than-anticipated 125 bps full-year headwind to Walmart U.S. comp sales from maximum fair pricing regulation. - Raised full-year adjusted operating income guidance to 7-8.5% from the prior 6-8% range, even after accounting for over $2 billion in incremental fuel costs above original guidance and a 20 bps headwind from the Vibe acquisition integration. - Raised full-year adjusted EPS guidance to $2.80-$2.87 from the prior $2.75-$2.85 range. Q3 EPS is expected to be 62-64 cents. - Expects Q3 2027 enterprise sales growth of 3-3.75%, and Q3 constant currency operating income growth of 2-4%. The slower Q3 growth reflects full-quarter impact of Q2 price investments from tariff refunds and a 100+ bps headwind from the timing of Flipkart's Big Billion Days event (shifted to Q4 this year). Combining Q2 and Q3, average quarterly operating income growth is expected to be approximately 10%. - Full-year capital expenditure is now expected to be approximately 4% of annual net sales (slightly higher than prior plans), but the company still expects double-digit free cash flow growth for the full year.

Segment performance

1. Walmart U.S.: Net sales increased 3.5% year-over-year, with ex-fuel comp sales of 2.6%. E-commerce sales grew 24%, with 52% growth for U.S. Marketplace and 38% growth for U.S. advertising (including Vizio). In-store comps were down low single digits, primarily due to health and wellness headwinds from maximum fair price regulation. U.S. e-commerce achieved double-digit incremental margins for the first half of FY27, with 37% of store-fulfilled deliveries being fee-based fast deliveries (an all-time high), and over 50% of e-commerce fulfillment volume processed through automated facilities. 2. Sam's Club U.S.: Delivered comp sales of 4.4%, driven by a 7% increase in transactions. E-commerce sales grew 26%, with triple-digit growth in delivery from club following the April launch of one-hour delivery. Membership income increased nearly 6% on steady growth in member counts and plus membership penetration. 3. Walmart International: Constant currency net sales increased 7.9%, led by 9.7% growth in China. E-commerce sales grew 19% overall, with strong growth in China, India, and Canada; e-commerce now makes up 30% of International segment sales. The segment expanded U.S. Marketplace capabilities to Mexico and Canada and launched Walmart Plus in Canada during the quarter. Overall enterprise: Constant currency net sales grew 5% (at the top end of guidance), global e-commerce net sales grew 23%, constant currency adjusted operating income grew over 17.4%, and adjusted EPS grew over 19%. Global membership income grew nearly 17%, global advertising grew 38%, and U.S. Marketplace net sales grew 52%.

Risks & headwinds

- Near-term macro pressure on consumers, with higher fuel prices (over $2 billion in incremental unplanned costs this year) leading to increased customer tradeoffs and modest spending pressure, particularly for lower-income households. - Regulatory headwinds in the U.S. health and wellness segment: maximum fair price regulation for prescription drugs created a 125 bps full-year headwind to Walmart U.S. comp sales, driven by price deflation and brand-to-generic drug substitutions. - Higher SG&A pressure from increased depreciation (from elevated capital expenditure on automation and fulfillment) and higher self-insurance/group health costs, driven by lower associate attrition increasing the number of plan enrollees.

Analyst Q&A

• Q: With incremental tariff refund investments in pricing, have you already seen unit acceleration, how much of the investment is supported by vendors versus Walmart, and how do you sustain lower prices after the refunds are fully deployed? /

  A: Management noted the quarter delivered strong results and durable share gains across food categories from price investments. They are managing investments thoughtfully across Q2 and Q3, and Walmart's core mission of everyday low price means the company will continue prioritizing low prices for customers long-term. Price investments have already driven transaction and unit growth in the quarter, with share gains expected to persist over time.

• Q: How have higher gas prices impacted lower-income consumers, and is there a lagged impact to share gains from price rollbacks? /

  A: Higher fuel prices (especially above $4 per gallon) have created incremental consumer pressure, with noticeable tradeoffs in spending in June. Price elasticity is visible on rollbacks, but market share gains from these investments are cumulative and lagged, with durable gains that persist after rollbacks are implemented. Unit growth shows up first, followed by lasting share gains, especially in food categories, with the company targeting permanent rollbacks where return thresholds are met.

• Q: What is the current outlook for incremental digital margins, and how will you maintain traffic growth after current price investments lap next year? /

  A: U.S. e-commerce incremental margins have held in the high single-digit to low double-digit range for the last six quarters, and management now has increased confidence that margins can rise further. Advertising growth is outpacing core e-commerce growth by a large margin on a larger base, and the Vibe acquisition opens new addressable market with small and medium advertisers. High-margin growth areas (membership, advertising, marketplace) now make up almost half of total profit growth, changing the company's earnings complexion and driving durable long-term margin expansion.

• Q: What's the multi-year outlook for the health and wellness category after the maximum fair price headwind this year? /

  A: Management emphasized that while there is a top-line headwind in FY27, the underlying health and wellness business remains strong: prescription volumes are growing, Walmart is gaining market share, and health and wellness customers spend 3x more than the average Walmart customer (doubling again for customers who use pharmacy delivery). Lower drug prices benefit customers long-term, aligning with Walmart's history of low-cost pharmacy, and the category remains a key strategic growth driver for the business.