WMT (Trans): 2.9bn tax rebate to slash prices; Q3 profit to take a back seat

Trans of Walmart FY27 Q2 earnings call by Dolphin Research

I. Core takeaways

1. FY guide raised across three metrics: sales growth lifted to 4%–5% (from 3.5%–4.5%), OP growth to 7%–8.5% (from 6%–8%), and EPS to $2.80–2.87 (from $2.75–2.85). Management stressed the raise comes despite >$2 bn in incremental fuel costs and a softer consumer backdrop vs. Feb, hence a cautious, small bump.

2. Q3 guide and 'Q2+Q3 combined' lens

Sales growth: 3%–3.75%. Q3 outlook.

OP growth (cc): +2%–4%. Q3 outlook.

EPS: $0.62–0.64. Q3 outlook.

Notes: most tariff refund dollars were deployed into price late in Q2, with a full-quarter impact in Q3. Viewed together, reported OP growth for Q2+Q3 averages ~10% per quarter; management asks investors to judge underlying growth on this basis.

3. $2.9 bn tariff refunds largely received: roughly 0.5% of annual net sales for U.S. biz. Q2 net contribution to OP growth was ~750 bps; excluding it, underlying OP growth sat near the top end of the 7%–10% guide. Remaining refunds will continue to be prioritized for price in H2, with financial impacts largely contained within FY27.

4. Key financials this quarter

Totals: net sales (cc) +5% (top end of 4%–5% guide); Adj. OP (cc) +17.4%; Adj. EPS up >19%. Quarter snapshot.

Segments: Walmart U.S. net sales +3.5%, ex-fuel comps +2.6%; Sam’s U.S. comps +4.4% (transactions +7%); Intl (cc) +7.9%, incl. China +9.7%. Growth mix.

E-comm & platform: global e-comm +23%; U.S. Marketplace net sales +52%; global ads +38%; global membership fee revenue +17% (record high). Digital and platform momentum.

Incremental margin: U.S. e-comm delivered double-digit incremental margin for the first time in H1, driven by ads & membership, denser delivery networks, paid fast delivery, and automation. Profit drivers.

5. Costs, capex, and cash flow

Fuel: >$2 bn incremental cost for the year (assuming current fuel prices). Cost headwind.

M&A integration: Vibe acquisition/integration diluted OP growth by ~20 bps. Integration costs.

SG&A: wage rate improved in Q2 (higher usage of in-store tech tools and supply-chain automation smoothing inventory flow), but offset by higher depreciation from capex and self-insurance costs; ~two-thirds of H1 self-insurance increase came from group medical. Expense mix.

Capex & FCF: capex raised to ~4% of annual net sales; FCF still expected to grow double digits; ending inventory (cc) +6%, slightly above sales growth. Balance and liquidity.

II. Detailed call notes

2.1 Exec highlights

1) Walmart U.S.: price investments and share. Q2 rolled out 11,000 rollbacks vs. 7,200 at Q1-end (normal ~5,000), concentrated in late Jul.

Price gaps vs. traditional grocers remain strong and are widening; share gains came from that channel as well as pharmacy and dollar-store formats. Share momentum.

Ex-MFP, this was Walmart U.S.’s best Q2 in ~3 years; toys, grocery, and fresh led, with high-income households continuing to contribute incremental demand. Category mix.

Store comps dipped low single digits, extending the trend since late Q4 last year, mainly due to health & wellness drag (the vast majority of sales in that biz occur in-store). Channel dynamic.

2) Walmart U.S.: comps decomposition (MFP and GLP-1). Core comps ex-health & wellness held a steady 3%–4% for ~2.5 years (abnormal quarters average to mid-range), expected to maintain into H2.

GLP-1 branded scripts added ~100 bps tailwind in FY25/FY26, but only about half that in FY27 as script growth is more than offset by price and mix headwinds. Tailwinds normalizing.

MFP first-year impact from deflation and brand-to-generic shift: initially forecast at -100 bps for the year, Q2 came in at ~-125 bps, and the full-year estimate has been raised to -125 bps. Regulatory impact.

Overall, total comps show a near 200 bps net swing vs. the last two-year trend, entirely from health & wellness, affecting revenue only, not profitability of that biz. Comps context.

3) E-comm and delivery speed. Global e-comm +23%; Walmart U.S. +24% (10th straight quarter >20%), Sam’s U.S. +26%, Intl +19%.

U.S. store-fulfilled delivery sales rose >40%, with weekly active customers +20%; U.S. e-comm penetration now >23%, double five years ago. Penetration and usage.

Stores handle 80% of e-comm orders and 100% of last-mile fast delivery; 70% of e-comm orders delivered same day or faster; items delivered within 30 minutes doubled YoY. Speed metrics.

U.S. fast delivery grew 48%, sub-30-minute delivery now covers 38 markets; paid fast delivery accounts for 37% of store-fulfilled delivery, a record high. Paid speed adoption.

Sam’s U.S. store-fulfilled delivery grew triple digits (1-hour delivery launched in Apr); fast-delivery users shop more often and are more likely to convert to Walmart Plus. Behavioral lift.

4) Platform: Marketplace and ads. U.S. Marketplace net sales +52%; nearly 50% of Marketplace orders go through WFS, up ~400 bps YoY, aided by broader assortment from key brands customers want.

Global ads +38%, driven by Walmart Connect U.S. (+43%) and Flipkart Ads; U.S. ads (incl. Vizio) +38%. Ad growth drivers.

Acquired Vibe, adding a previously under-penetrated SMB audience; together with Walmart Connect and Vizio, this forms self-serve tools with attribution to real purchase behavior. SMB expansion.

5) Platform: membership and data. Global membership fee revenue +17% (record high); Sam’s U.S. membership fee +6%, driven by growth in members and Plus penetration; Sam’s China membership hit a record, Mexico performed relatively well.

Walmart Plus U.S. remains double-digit growth, marking the best H1 membership additions ever; member spend is ~4x non-members. Membership economics.

Data biz Scintilla will expand to Sam’s U.S. next year, addressing a top supplier request; its decision intelligence can identify shared growth opportunities across Walmart formats and markets. Data platform rollout.

6) Intl and platform spillover. Intl sales (cc) +7.9% (near 8%), driven by China (+9.7%) and India; e-comm +19%, with China, India, and Canada standout.

Intl e-comm penetration reached 30%. Penetration milestone.

U.S. Marketplace capabilities were exported to Mexico and Canada this quarter, and Walmart Plus launched in Canada; Mexico is replicating the U.S. playbook from five years ago, with good early progress. Playbook transfer.

Flipkart’s Big Billion Days timing shift will be a >100 bps headwind to Q3 sales growth and a similar tailwind in Q4. Event phasing impact.

Platformization means 'build once, keep improving, reuse globally', avoiding the need to rebuild capabilities market by market. Scalable model.

7) Supply chain and automation. 3,100 U.S. stores now have some level of automated freight handling; over 50% of e-comm fulfillment volume runs through automated facilities.

Automation plus denser networks and higher utilization reinforces both speed and profitability, also contributing to Q2 wage rate improvement. Operational leverage.

Physical network, fulfillment assets, and local delivery capabilities keep the company close to customers while sustaining an attractive cost structure. Structural advantage.

8) AI and new use cases. Sparky users up ~70% YoY; customers using Sparky spend ~40% more per order than those who do not.

Sparky can instantly generate meal plans and kits on demand (e.g., high-protein weekly plans) and add to cart in one click, while recognizing recently purchased items across online/offline to avoid duplicates. AI utility.

Speed is not just a fulfillment metric but also a customer acquisition strategy: by partnering on meal solutions and prepared foods with Subway, the addressable spend expands beyond grocery/GM into broader everyday food. Adjacent expansion.

9) Merch and private brands. Private brands Scoop and Free Assembly delivered triple-digit comps; Wonder Nation is currently the largest kids’ apparel brand in the U.S.

Back-to-school: Walmart accounts for ~50% of industry unit sales in school supplies; prices for 14 core items are below 2019 levels (e.g., Pen & Gear crayons $0.25, No.2 pencils $0.92). Price leadership.

Back-to-college home décor performed strongly, with candles, throws, rugs, and lamps posting double-digit to triple-digit comps. Category winners.

Food: summer BBQ basket feeds 8 for under $40, with 13 items priced 16% below last year; private brand Better Goods has become a $1 bn brand. Value proposition.

2.2 Q&A

Q: After deploying tariff refunds into price, have you seen volume acceleration? How much was borne by suppliers vs. Walmart, and how will you sustain these lower prices into 2027 after this investment base?

A: Sales grew 5% and OP grew strongly this quarter. Ex-MFP in pharmacy, this was Walmart U.S.’s best Q2 in ~3 years, with U.S., Intl, and Sam’s all performing well and gaining share across the board.

On price, we said at Q1-end customers still felt pressure, so we invested in price in Q2; what categories and timing were carefully weighed and managed across two quarters. Our merchants are experienced at rebalancing assortments to preserve value; the result is share gains, especially in food, and those share gains tend to be durable.

Looking ahead, combining Q2 and Q3, we are confident in the outlook for sales and OP and will work to keep prices as low as possible for the rest of the year. Price stance.

Q: Beyond higher fuel, is there any new pressure on lower-income consumers vs. recent years?

A: Consumers are indeed under more pressure vs. early in the year, mainly from fuel rising. Month by month, once gas moved above $4, we saw clear trade-offs, suggesting a psychological threshold, with June most evident.

That is why we pushed prices down aggressively. Mitigation.

Q: Do price investments and rollbacks show elasticity immediately, or do they take ~half a year to fully materialize?

A: Items do show price elasticity, but with a lag; the benefits of lower prices accrue over time and do not fully offset in-period. We manage the business over multi-year horizons, not quarter by quarter, and the share we’ve gained in recent quarters is sustainable, which gives us confidence to invest aggressively.

Mechanically: Q1-end rollbacks were ~7,000 (vs. ~5,000 normal), rising to 11,000 by Q2-end. In daily essentials like food, rollbacks first show up as unit growth—transactions and units both rose this quarter—and create temporary deflation; as units keep rising, especially in food, share gains emerge, and recent food-share reads are the strongest in a while.

We aim to convert rollbacks into everyday low prices where the payback path is clear; where it is not, we will be cautious. EDLP intent.

Q: Are tariff rates under the new terms higher or lower than IEEPA? And relative to FY27, can OP still grow at 2x sales?

A: Tariff-rate assumptions reflect current realized levels, same for fuel; if fuel improves, that is upside to forecasts. For FY27 and beyond, we are confident OP growth can outpace revenue materially.

Revenue should not be minimized: on a ~$750 bn base, 4%–6% annual growth is meaningful. The key difference is profit quality: Walmart U.S. comps at 2.5% (closer to 3.5% ex health & wellness), and even at 2.5%, OP ex tariffs grew 10%, or 4x revenue—relative to U.S. comps, we have not achieved that kind of profit growth in two decades.

The business is fundamentally changing: roughly half of growth now comes from membership, ads, and Marketplace, which should continue; incremental margin is in low double digits today, with a path to further expansion. Profit mix shift.

Q: Health & wellness was a major growth contributor in recent years; how do you see it over the next few years, especially MFP impacts over the next 2–3 years?

A: It was a tailwind and turned into a headwind this quarter; details on slide 14 in the supplemental. Transparency is necessary, but it does not imply dissatisfaction—lower prices help over time, and Walmart has a tradition of lowering pharmacy prices going back to $4 generics.

Underneath, momentum is good: scripts continue to grow, share is rising, and customers respond strongly to the convenience we are building around pharmacy. This cohort is highly valuable: health & wellness customers spend ~3x the average Walmart customer; if they also use pharmacy delivery, spend nearly doubles again.

We have a unique opportunity to connect pharmacy expertise, digital capabilities, and local fulfillment to make healthcare more accessible and deepen relationships with these customers. Strategic opportunity.

Q: As the lagged effects of price investments kick in, have U.S. comps already started to accelerate? If not, how much additional price investment would you consider in H2 through 2027, especially once refund dollars are fully deployed?

A: EDLP is our philosophy to build trust; we provide a stable basket value over time, so if there is room to lower prices, we bias to lower. But we must balance market conditions with commitments already made (including long-term OP targets), which requires continuous judgment.

Stepping back to the model: growth in membership, ads, data, and fulfillment services makes the model more durable and gives us more options. We are satisfied with current price gaps and will defend them, and we are also comfortable with the rollback count.

Rollbacks began to scale in late Jul, with Jul stronger than Jun; both K-12 and college back-to-school started well. We will keep tracking and merchants will rebalance assortments, evaluating each investment.

The end goal—similar to pharmacy—is to run a business customers can rely on, offering flexibility whether at the counter, curbside, or delivered to the home. Customer-centric execution.

Q: Update on digital incremental margins? And how do you lap the rollback/price-investment base next year while keeping store traffic intact?

A: On the latter: repeating 19% EPS growth next year will be challenging. We manage on annual and multi-year horizons and remain confident in our pipeline for next year and beyond.

Incremental margin is central to the story: these high-growth businesses keep contributing more to the bottom line. We have not committed to a specific number, but over roughly the last six quarters, U.S. e-comm incremental margin ran in high single to low double digits.

A few quarters ago we were cautious on further improvement; now, seeing ads grow ~40% on a much larger base, we are more confident incremental margin can move higher. To lift incremental margin, ads must grow faster than e-comm—and they are, by a wide margin, on a bigger base.

Acquiring Vibe opens the SMB market we previously did not reach. Ads are one piece; we will keep stacking complementary high-margin businesses.

Digital growth scales at very low marginal cost; platform playbooks are being exported, with Mexico replicating the U.S. five-year-ago approach and showing early success. Finally, incremental margin is not only growing but doing so at roughly 2x the pace of overall margins, shaping future profitability and durability of growth.

Q: Grocery is still growing mid-to-high single digits and beating the market; GM slowed—how much was the fade of Q1 tax-refund stimulus vs. fuel’s impact on lower-income consumers? And has back-to-school started to lift GM?

A: Q1 undoubtedly benefited from tax-related stimulus; we acknowledged that last quarter; in Q2, peak fuel prices were higher than Q1. All of that affects results, and it is hard to precisely apportion macro vs. company execution.

Core biz and value proposition look solid, and the outlook is encouraging. Timing-wise, most regions start school ~one week later vs. last year, so it is early to call K-12; college back-to-school is performing very well.

In GM, private brand Wonder Nation is the largest kids’ apparel brand in the U.S.; share gains from higher-income customers partly come from more premium brands and pricier assortments, which is also one reason inventories are up. Further details: GM teams show progress in style, trend, fashion, and toys; fashion PBs Scoop and Free Assembly posted triple-digit comps.

College back-to-school home décor led, with candles, throws, rugs, and lamps recording double to triple-digit comps. In school supplies, Walmart accounts for ~50% of industry unit sales, with 14 core items priced below 2019 (e.g., Pen & Gear crayons $0.25, No.2 pencils $0.92); these prices are resonating, with traffic, basket, and units all up.

Q: Rollbacks rose ~50% QoQ to ~11,000, likely a record—how are they performing, what metrics/payback do you use to convert to everyday pricing, and what share has met the hurdle?

A: We have been clear all year: invest in price wherever possible, and prioritize price when refunds arrive; that is what we did this quarter. For instance, meat has been high-priced, so we invested in important items like ground beef and will keep monitoring.

Each rollback has start and end dates; we track unit changes and category impact, and the key criterion is share gain—the ultimate measure of relative market performance. It may not be the absolute record, but it is the highest in recent memory, reflecting merchant execution, our market position, and the scale of funds available for price.

Since the push started in late Jul and continues into Q3, both sales and OP should be assessed on a Q2+Q3 combined basis. We are not investing for its own sake, but because we believe in lasting customer-perception effects; the goal is trust.

It is too early to say how much converts to everyday pricing; we will work with suppliers to determine feasibility. Conversion approach.

Q: Any pockets of inventory to worry about? And inflation expectations for the rest of the year?

A: Inflation is low overall this year, at ~1%–2%; rollbacks helped this quarter and recent months, so we are not concerned about inflation right now. Fuel is the only line we are watching closely given its magnitude, and we hope it eases.

Inventory is a constant focus given its ties to sales, markdowns, and cash flow. In Walmart U.S., which is the bulk of inventory, lines look healthy with growth between 1% and 4%.

This includes forward deployment, some nominal lift from higher fuel, and a portion of own-made inventory. Most categories are in the 1%–4% range; daily essentials sit at the high end of that band.

Overall, no major inventory concerns; in Jun and Jul, a few categories were thin, and we will adjust as we read customer behavior. Inventory discipline.

Q: How do you communicate price investments funded by tariff refunds to customers/members to ensure expected returns? Are peers doing the same? How do you allocate between grocery and GM (refunds mostly originated in GM)?

A: Investments are storewide. Online and in-store you will see rollback combinations across grocery, GM, consumables, and apparel, spanning seasonal items and everyday refillable items.

We intentionally pursue portfolio investments rather than overweighting any single category—customers need a diverse basket. At back-to-school and college, there is dorm décor and home setup alongside supplies and school lunches, so investments are spread across the whole store.

In-store price signage is strong, and online the rollback tile sits prominently near the top-left of the homepage and remains there over time. We will keep communicating value in multiple ways, and we believe these price cuts will help customers through H2.

Q: How will price investments shape H2 comps in terms of traffic vs. ticket?

A: Transaction growth this quarter is a positive sign—Walmart, Sam’s, and Intl all saw global traffic and units rising. These two metrics are a core topic weekly: each market’s Monday trade meeting covers sentiment, how many customers we served, new customers, and unit growth.

Mechanically, after investments across divisions, GM categories tend to respond faster in dollar sales; in food and consumables, prices fall first, units rise next, and more durable effects emerge over weeks to months—customers do not eat more because prices are lower. But rollbacks and low prices build trust over time, convincing customers they can buy a basket at low prices at Walmart, delivered in the way they prefer—counter, curbside, or home.

Q: U.S. OpEx up 7%—any timing effects? Were claims costs higher than expected? How to think about H2?

A: Depreciation is a major driver, tied to capex on supply-chain automation and delivery speed; results are clear—items delivered within 30 minutes doubled YoY, and 70% of e-comm orders arrive same day or faster, all enabled by these investments. Self-insurance is under pressure, mainly from claims and group medical.

About two-thirds of H1 self-insurance increase came from group medical, as employee turnover fell markedly (good for the biz, with more experienced associates), but lower turnover raises enrollment, which is material at Walmart’s scale. Sometimes we tilt spending more in certain quarters; Q2 was such a case—while not singled out in prepared remarks, we view these investments as prudent with expected benefits in H2.

Q: Beyond pharmacy headwinds, did higher fuel reduce store trips and did pharmacy delivery cannibalize in-store, and what is temporary vs. structural channel mix shift?

A: Stores are assets. This quarter, stores were indeed dragged by pharmacy, which heavily influences store comps as most of pharmacy still occurs in-store, but delivery also performed well.

In an omnichannel model, stores place inventory and associates within ~10 miles of 95% of the U.S. population—fast delivery, accuracy, flexibility, and shop-any-way are impossible without stores. Historically, stores and e-comm were separate, but once integrated, our focus is on top and bottom lines; the middle is managed by Walmart, keeping flexibility for customers.

Classification depends on where payment happens: paying on mobile and picking up is an e-comm order, not a store order, though fulfillment is done by stores; sub-30-minute delivery is mobile payment with a shopper delivering, and inventory is fulfilled by stores. Stepping back, more volume than ever flows through stores, and it is still growing.

We track every channel, protect the store experience, and will keep investing in new stores and remodels, ensuring stores have omnichannel capabilities to support e-comm. Omnichannel investment.

Q: U.S. average ticket has trailed inflation for two quarters—how is the basket changing? Any visible trade-down, major mix shifts, or smaller-pack moves, and what is temporary vs. lasting?

A: Share gains are broad-based across categories, indicating the strategy is working. Grocery grew mid single digits with strong unit growth and continued share gains.

Examples: we deployed part of refunds into a summer BBQ basket feeding 8 for under $40, with 13 items priced 16% below last year; private brand Better Goods wins on value and is now a $1 bn brand; and we brought food into back-to-school with a new campus lunch basket containing 10 high-protein lunches (price not captured in transcript). These are cases where traffic, basket, and units all rose, driven by these investments.

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