--- title: "WMT: Solid results; stretched valuation is the problem." type: "Topics" locale: "en" url: "https://longbridge.com/en/dolphin/post/43527495.md" description: "Underlying operating metrics softened slightly. This has heightened market concerns." datetime: "2026-08-21T05:28:38.000Z" locales: - [en](https://longbridge.com/en/dolphin/post/43527495.md) - [zh-CN](https://longbridge.com/zh-CN/dolphin/post/43527495.md) - [zh-HK](https://longbridge.com/zh-HK/dolphin/post/43527495.md) author: "[Dolphin Research](https://longbridge.com/en/dolphin.md)" generator: "portal-rs" --- # WMT: Solid results; stretched valuation is the problem. Before the U.S. market opened on Aug 20, 2026 (Beijing time), Walmart (WMT) reported Q2 of FY2027 (covering May 1–Jul 31, 2026). **Most of the upside vs. estimates came from a one-off tariff rebate, while softer underlying ops intensified market concerns.** **Key takeaways:**$Walmart(WMT.US) Details follow. **1) Walmart U.S.: Traffic decline weighed on comps.** Core ops in North America saw comps +2.6% YoY, with a clear QoQ decel. **Transactions rose just +1.5% (Q1: +3.0%), the main drag**, while average ticket was +1.1% (flat vs. Q1).E-comm remained the strongest driver at **+24%, contributing ~510bps to comps; store-fulfilled delivery +43%, ads +38% (Walmart Connect ex-VIZIO +43%), Marketplace +52% (Q1: +50%, further accelerating).** **2) Sam's Club (U.S.): Outperformed, with faster transactions.** Ex-fuel comps were +4.4% (Q1: +3.9%), the only segment with accelerating comps among the three.Transactions rose +7.0%, improving QoQ. **Management cited high gas prices as a powerful traffic funnel: Sam's fuel volumes rose +12% YoY in May vs. industry -5%, and fuel members spend 1.6x that of non-fuel members across other categories,** while average ticket fell 2.5%, **mainly as mix shifted toward lower-ticket, high-frequency groceries and Member's Mark private label substituting higher-priced brands.** **3) Walmart Intl: China was the only growth engine.** Q2 Intl revenue was $35.2bn, +12.8% YoY. **Key markets China, Mexico, and Canada all slowed vs. Q1** and, on profits, higher local wages and e-comm investment drove OP declines outside China. **4) High-margin, asset-light 3P lifted overall profitability.** On opex, higher self-insurance claims, D&A from capex, and employee healthcare costs pushed SG&A up 40bps YoY to 21.2%.With a rising mix of 3P + ads + membership, and excluding the one-off rebate **($2.9bn, ~0.5% of annual U.S. sales), OP grew 9.9% YoY, again outpacing revenue growth.** **5) Guidance nudged up, but below expectations.** FY constant-FX net sales growth was raised to 4.0%–5.0% (from 3.5%–4.5%); Adj. OP to 7.0%–8.5% (from 6.0%–8.0%). **As most rebate dollars only flowed into pricing late in Q2, the full cost impact hits Q3; plus Flipkart’s promo timing creates a >100bps sales headwind, so the full-year raise trailed Street expectations.** **6) Key financials at a glance:** **Dolphin Research view:** On Q2 prints alone, results were solid. The core market concern is softer 2H guidance, with debate centered on the one-off $2.9bn tariff rebate in Q2.In such cases, companies typically have two choices: **book it to the P&L and post a pretty EPS, or spend it for strategic gains. Walmart chose the latter — from Jul 6 it rolled out one-time price cuts on 250+ SKUs, with reductions up to 25%.** Dolphin Research sees this as reasonable: using off-P&L one-time funds, **Walmart effectively launched a price war without consuming current profits, while traditional grocers lack comparable funding and, per checks, explicitly will not match these temporary cuts.** This creates a short window: **Walmart can widen the price gap while rivals cannot retaliate.** **Given Walmart already holds 24% share in U.S. grocery (Kroger 10%, Costco 9%, Albertsons 6%, Publix 5%), this window looks high-ROI for Walmart.** Thus, despite Q3 OP guidance of just 2.0%–4.0%, **Dolphin Research believes the strategy is sound if the next few quarters show clear traffic recovery and further share gains in core grocery. The company is in a key phase of accelerating share capture among higher-income cohorts.** On the stock, **using the mid-point of the raised full-year Adj. EPS guide at $2.85, 2026E P/E has eased to 36x. While ads + membership + Marketplace continue to grow at double-digit rates underpinning the mid/long-term thesis, near-term pressure could build in FY2028 once the tariff rebate is spent, SNAP cuts fully flow through, and this year's price cuts create a tough traffic base. We would wait for sub-30x, ~$86, to add.** **Detailed earnings analysis below** **Details:** **I. Investment framework** Per Walmart disclosures, **revenue growth breaks down into three segments — Walmart U.S., Walmart Intl, and Sam's Club U.S. — with each driven by comps (volume × price), new/closed stores, and e-comm contribution.** **(1) Walmart U.S.** is the core franchise, FY26 revenue of ~$483.0bn (~68% of total). The format is led by Supercenters, with Neighborhood Markets and Discount Stores as complements. **Comps further split into transactions and average ticket as key drivers.** E-comm is the segment's main engine, **now ~20%–23% of segment sales.** Within e-comm, 1P, 3P Marketplace, Walmart Connect (retail media), and Walmart+ (paid membership) form four pillars, **with ads and membership as the core profit drivers.** **(2) Walmart Intl** spans Mexico & Central America (Walmex), China, Canada, etc., across Walmart stores and Sam's Clubs overseas, **with FY26 revenue of ~$130.0bn (~18% of total).** E-comm penetration varies: **China is >50% (largely Sam's online),** India’s Flipkart is a leading platform under Walmart control, run independently and still loss-making but narrowing; Walmex e-comm penetration is ~8%–9%, replicating the U.S. ads + Marketplace model and in early fast-scaling. **(3) Sam's Club U.S.** is a membership warehouse club, FY26 revenue of ~$93.0bn (~13% of total). Topline relies on steady comps, while profits leverage membership fee scale and high renewal, with Scan & Go and Club Pickup lifting e-comm penetration. **Against Costco, Sam's is more aggressive on pricing, though it still lags in curation and in-club member experience.** **II. Walmart U.S.: Traffic decelerated QoQ** **1) Volume and price both softened; low-income cohort under pressure.** Walmart U.S. delivered $125.2bn in sales, +3.5% YoY. Ex-fuel comps rose 2.6%, down sharply from Q1's 4.1% and below consensus (3.8%). **By mix, transactions grew just +1.5% (Q1: +3.0%), a clear QoQ slowdown,** and Dolphin Research believes **persistent high prices in North America, rising fuel costs, and higher rates led lower-income cohorts to cut trips. The $100k+ income cohort continues to trade down into Walmart, but not enough to fully offset weaker low-income traffic.** Average ticket was +1.1% (flat vs. Q1). **By category:** grocery grew low single digits, **with egg deflation a ~60bps drag;** growth came from pantry, fresh, and 'better-for-you' innovation. Consumables were led by personal care, beauty, and pets; general merchandise grew low single digits on toys and apparel, with private label mix up 130bps. On stores, Walmart opened 1 Neighborhood Market and completed ~220 remodels this quarter. YTD, it opened 3 Supercenters and 1 Neighborhood Market, and completed ~280 remodels. **1.2 E-comm and high-margin businesses remained strong.** **E-comm was again the standout at +24% (Q1: +26%), contributing ~510bps to comps.** Mix-wise, **store-fulfilled delivery grew ~43%, with sub-3-hour express now ~37% of store-fulfilled orders.** Dolphin Research believes speed has shifted from a fulfillment KPI to a customer acquisition tool. **Fast-delivery users shop more frequently, are more engaged, and are more likely to become Walmart+ members, while Walmart is expanding use cases from grocery/GM into meal solutions** (announced a prepared-foods tie-up with Subway this quarter). **3P Marketplace beat expectations, up 52%, accelerating vs. Q1's 50% (already a ~10-quarter high).** Dolphin Research views Marketplace's value not in revenue, but in tilting mix toward higher-margin GM. **GM margins are well above grocery, and Walmart avoids inventory risk via 3P vs. 1P in GM — a core lever in management's multi-year margin expansion path.** **Ads:** Walmart U.S. ads rose 38%, with Walmart Connect (ex-VIZIO) +43%; global ads +38%. An important strategic move this quarter: on Jun 23, Walmart announced a ~$1.4bn acquisition of Vibe.co, its largest M&A in nearly two years. Vibe.co is a self-serve CTV ad platform focused on SMBs and mid-sized brands. **The strategic rationale: Walmart Connect still skews to large advertisers, while SMB long-tail is its most obvious gap vs. Amazon.** **With Vibe.co plus VIZIO smart TV assets and recent integrations with Magnite, Yahoo DSP, and Google DV360, Walmart is stitching together 'self-serve + CTV inventory + closed-loop attribution.' If SMB self-serve scales, the ad TAM rises structurally — Walmart's only realistic path to narrow the gap with Amazon on mix.** **Membership:** U.S. 'membership and other income' rose 15.6%; Walmart+ posted double-digit membership fee growth, with Q2 net adds at a record for the period. On AI, **users of Sparky rose ~70% YoY, and Sparky-assisted orders carry ~40% higher basket size than non-assisted.** Membership plus ads now contribute roughly one-third of company OP, with subscription-like, recurring characteristics, underpinning profit resilience amid high fuel and softer consumption. **III. Sam's Club: Higher gas prices boosted appeal** Sam's Club (U.S.) posted net sales of $25.7bn, +8.8% YoY, **+4.5% ex fuel.** **Transactions:** +7.0%, accelerating from Q1's +6.2%, and the highest across Walmart segments. Dolphin Research sees two drivers: **(1) fuel stations funneled strong traffic in a high gas price environment; (2) continued push on rapid fulfillment — after launching 1-hour delivery in Apr, club fulfillment grew triple digits, now covering 65% of U.S. households within 3 hours, with >25% of fast orders delivered within 1 hour.** **Average ticket:** -2.5% (Q1: -2.2%). **This is not a negative in the club model — it signals 'members buy more for less,' and with profits driven by membership fees rather than product margin, stronger value perception supports renewals.** **IV. Intl: Wider divergence; China is the only growth engine** Intl net sales were $35.2bn, +12.8% YoY, including: **Walmex (Mexico & Central America): Price investment failed to drive growth.** As pre-disclosed by listed Walmex, Q2 revenue rose 1.9% YoY (+3.2% at constant FX). Mexico comps +1.8% — decomposed into average ticket +2.9% and traffic -1.1%; Central America comps +2.4%. 23 new stores opened in Q2 (21 Mexico, 1 Costa Rica, 1 Guatemala). Walmex also cut its FY constant-FX sales growth guide to 3.5%–4.5%, citing a slower-than-expected consumption recovery. **Dolphin Research highlights two points. First, Mexico traffic weakened further from -0.9% in Q1 to -1.1% in Q2, with comps slowing from 3.1% to 1.8%, suggesting 'price cuts for traffic' has not worked in Mexico.** The core reason, in our view, is Mexico's macro purchasing power is contracting, whereas U.S. low-income pressure is being offset by trade-down from higher-income cohorts. **China: Sam's continued to perform well.** China constant-FX net sales were $7.0bn, +20.7% YoY, with comps +9.7% (gradually slowing), the fastest within Intl. E-comm grew 26%, and digital sales penetration reached 55%, **indicating the model is proven — dark stores, rapid delivery, in-app ordering, and membership have been deeply integrated. Next-leg growth should come more from store expansion and steady same-store compounding rather than a one-off penetration jump.** **Canada: E-comm investment phase; profits down.** Canada constant-FX net sales were $6.5bn, +6.0%, with comps +4.0%, but **OP declined on strategic wage investments. Canada is in a 'profit for penetration' phase — Walmart+ just launched and e-comm grew 35%, both requiring upfront spend, so near-term margin pressure is understandable.** **V. Rising high-margin mix continues to lift margins** Q2 GPM expanded 90bps YoY to 26.1%, driven by tariff rebate benefits and mix improvement (notably digital ads).On opex, higher self-insurance, D&A from capex, and employee healthcare all rose, lifting SG&A by 40bps YoY to 21.2%. With the higher-margin mix from 3P + ads + membership, and excluding the one-off rebate **($2.9bn, ~0.5% of annual U.S. sales), OP grew 9.9% YoY, again outpacing revenue.** \ **Dolphin Research on 'Walmart' — prior analyses:** **Earnings take:** May 22, 2026: '[Walmart: Gas Spike! Can the Retail King Hold Up?](https://longbridge.cn/en/dolphin/post/41013925?channel=SH000001&invite-code=UIFH4YD0&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN&share_track_id=7ccb17fb-a5bc-4fc6-8c39-2f06664937d9)' **Deep dive:** Apr 21, 2026: '[Walmart: How the $1tn Retail Titan Was Forged](https://longbridge.cn/en/topics/40062831?channel=SH000001&invite-code=UIFH4YD0&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN&share_track_id=5bfd098a-3e80-4038-9cee-8d1cb147b416)' Risk disclosure and disclaimer: [Dolphin Research Disclaimer & General Disclosure](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [MARK.US](https://longbridge.com/en/quote/MARK.US.md) - [ACI.US](https://longbridge.com/en/quote/ACI.US.md) - [WMT.US](https://longbridge.com/en/quote/WMT.US.md) - [SAM.US](https://longbridge.com/en/quote/SAM.US.md) - [COST.US](https://longbridge.com/en/quote/COST.US.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**