--- title: "WMT (Trans): High oil costs weigh on quarterly profit; cautious guide" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/41014810.md" description: "Below is Dolphin Research's Trans of Walmart's FY2027 Q1 earnings call. For our take on the results, please see 'Walmart: Rising oil prices — can the retail king still hold up?'" datetime: "2026-05-22T02:33:44.000Z" locales: - [en](https://longbridge.com/en/topics/41014810.md) - [zh-CN](https://longbridge.com/zh-CN/topics/41014810.md) - [zh-HK](https://longbridge.com/zh-HK/topics/41014810.md) author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # WMT (Trans): High oil costs weigh on quarterly profit; cautious guide **Below is Dolphin Research’s memo of WMT FY2027 Q1 earnings call; for our take on the print, see ‘**[**Walmart: Oil Spike Hits. Can the Retail King Hold the Line?**](https://longbridge.cn/en/topics/41013925?channel=SH000001&invite-code=UIFH4YD0&app_id=longbridge&utm_source=longbridge_app_share&locale=zh-CN&share_track_id=7f222846-6442-41c8-849e-10232bc7184d)**’**$Walmart(WMT.US) **I. Key takeaways** 1\. **Guide unchanged**: Reiterated FY sales growth of 3.5%-4.5% at constant FX. Based on Q1’s 5.7% and Q2 outlook of 4%-5%, full-year sales are likely to land toward the high end of the range. FY OP growth guided at 6%-8% (cc). Q2 OP growth guided at 7%-10% (cc). 2\. **Fuel headwind significant**: Q1 fuel costs ran ahead of plan, creating a ~$175 mn headwind to global supply chain and fulfillment (~250 bps to OP growth). Management chose not to pass costs to customers, continuing to invest in price to protect share. If fuel stays elevated, retail price inflation is expected to trend higher into Q2 and 2H. 3\. **Tariff assumptions conservative**: FY guide excludes any impact from IEEPA-related tariff refunds. As an importer, the maximum refund eligibility is less than 0.5% of annual US sales. Tariffs and fuel are assumed roughly unchanged from current levels. 4\. **Profit mix improving**: **Higher-margin lines — ads, membership and Marketplace (collectively, Commerce Solutions) — now contribute ~1/3 of OP.** **Q1 category mix drove the first positive contribution to Walmart US GPM expansion in 18 quarters (+29 bps).** **II. Call details** **2.1 Prepared remarks** 1\. **E-comm & delivery** a. Enterprise e-comm sales +26%, with Walmart US delivery +45% and Sam's Club US store delivery +90%+. b. Delivered 3.5+ bn same-day/next-day orders globally in Q1. Over 36% of US store-fulfilled deliveries arrived within 3 hours, with sub-30 min and sub-1 hour options growing fastest. c. About 60% of the US population is now covered for 30-minute-or-less delivery. d. China e-comm grew 30%+, with 500 mn+ deliveries in Q1 and ~75% arriving within 1 hour. India’s Flipkart operates 800+ micro-fulfillment centers, averaging under 13 minutes per delivery. e. Reached 1 mn cumulative drone deliveries in Q1, ~40% completed this quarter. Now operating across 66 sites in 4 states. 2\. **AI & Sparky** a. **Sparky (AI shopping assistant) weekly active users more than doubled QoQ.** **AI investment lifted Sparky’s intelligence and response quality by 40% YTD.** b. Sparky now spans app, web and in-store, adding personalized replenishment, meal planning and smart recommendations based on inventory, price and speed. c. Customers using Sparky show ~35% higher AOV than non-users. Use cases have shifted from general merchandise discovery toward grocery and staples, with items purchased via Sparky up 4x+ QoQ. 3\. **Marketplace** a. **US Marketplace GMV up nearly 50%, the fastest in 2.5 years. Walmart Fulfillment Services (WFS) same-/next-day units up ~150%.** b. Cross-border Marketplace has expanded to Canada and Mexico, with encouraging early results. c. **Marketplace sellers’ ad spend rose 50%+ YoY, lifting related sales.** 4\. **Ads & membership** a. Global ads +37%, with all segments up 30%+. Walmart US ads +36%. b. Enterprise membership fee revenue +17%+. Walmart+ membership fee revenue growth accelerated, with net adds hitting a Q1 high. Walmart+ members spend 4x and visit e-comm 7x vs. non-members. c. Sam's Club US membership income +5.6%. **New fee increase effective May 1; launched Dynamic Express delivery with 1-hour service for members.** 5\. **Supply chain automation** a. About half of Walmart US e-comm fulfillment centers are automated, and 60%+ of stores receive from automated DCs. b. Over half of regional DCs are in various automation phases, with deployment pace much faster than a few years ago. 6\. **General merchandise (GM)** a. US GM comps positive, with fashion again a standout. GM share gains reached a 5-year high. b. Fashion lifted adjacent categories (home decor, beauty). In beauty, 75% of growth came from new brands such as La Roche-Posay. c. Intl GM outgrew food and consumables, helped by Lunar New Year activations. d. Q1 category mix made a positive contribution to GPM expansion for the first time in 18 quarters. 7\. **Consumer trends & pricing** a. Divergence persists: **high-income households show solid confidence, while low-income consumers face tighter budgets. Fuel transactions per visit at gas stations fell below 10 gallons for the first time since 2022.** b. ~7,200 Rollback deals live online, up 20%+ YoY (vs. 5,000-5,500 in prior years). c. Like-for-like inflation in Q1 ran just over 1%, with eggs contributing ~100 bps of deflation. d. Private-label penetration fell ~40 bps overall (food down ~100 bps on cheaper eggs; GM up ~200 bps). **2.2 Q&A** **Q: Walmart US e-comm incremental margin is in the high single to low double digits. Beyond fuel, what else can drive further incremental margin?** A: US e-comm incremental margin was ~12% this quarter, which we find very healthy. The flywheel is speed drives frequency — **when we deliver within customers’ expected windows, engagement rises sharply.** **A milestone this quarter: 60% of US households can now get 30-minute delivery.** Higher engagement lifts the value of membership, with **membership fee revenue up 17.5% this quarter.** If you look at membership plus ads, they now account for about one-third of our profit, a very different mix from a decade ago. This more subscription-like, recurring stream helps buffer macro and fuel volatility. The strategy continues to work — a strong core retail flywheel and share gains underpin the expansion of e-comm, Marketplace, ads and membership. Notably, enterprise e-comm grew 26% and US Marketplace nearly 50% this quarter, both key drivers. Cross-border Marketplace is scaling across North America, and we are building a compelling seller value proposition to serve customers near term and improve the model long term. On fuel, our logistics and sourcing teams are experienced, and we have many levers on the merch side to navigate. Our positioning is built to withstand a range of environments. **Q: Traffic accelerated at Walmart US and Sam's Club (Walmart US +3%, Sam's +6%). How do you sustain this momentum? How will tariff refunds be used?** A: Traffic strength starts with our core capabilities. First, merchandising — **EDLP and 7,000+ Rollbacks send a powerful value signal, up sharply from 5,000-5,500 in prior years.** **Second, GM is a standout, with fashion and beauty performing well at Walmart US.** Third, the e-comm experience keeps improving. EDLP combined with 30-minute delivery across so many markets is why US e-comm has now grown 20%+ for nine straight quarters. On tariff refunds, we will prioritize reinvestment in price. Given fuel pressure on consumers, along with the retention and share gains we see, we view every dollar best deployed into the customer and into price — so expect more Rollbacks. **Q: When will alternative revenue platforms (ads, Marketplace, etc.) in Canada and Mexico begin contributing to margin?** A: We are excited about platformization. The internal mantra is build once, scale globally. We have built extensive capabilities in the US and are now porting them to other North American markets, with more to come as timing permits. In Commerce Solutions (ads, membership and data), we believe we are ready to export globally. Internationally, we already see early traction. Intl e-comm grew 27% with a 30% penetration rate, membership +30%, ads +30%. While off a smaller base, growth is rapid, and we are confident in the value these bring to customers. **Q: Recent quarters saw one-off external headwinds (tariffs, fuel) impede the double-digit OP growth aspiration from Investor Day. With the external backdrop unlikely to ease, should expectations be lowered? How are alternative revenues tracking?** A: To revisit the framework: the multi-year plan is ~4% top-line growth with faster OP growth. The chart showed roughly a 4%-8% OP growth range. On incremental margins, we can achieve double digits — US e-comm did so this quarter. Frankly, we are as excited about the business potential as we have been in years, so there is no need to tamp down expectations. **Last year’s tariffs and this year’s higher fuel are exogenous shocks,** which is why we guide in ranges. But core earnings power — share gains across income cohorts and acceleration in high-margin lines like ads, fulfillment services and Marketplace — gives us confidence. Looking just at Marketplace, ads and fulfillment services, collectively and individually, this was the best quarter in my tenure. We are not immune to macro swings. Still, in Q1 at constant FX, even with fuel headwinds, we landed in the upper half of our guide. We manage for the long term and won’t sub-optimize strategy off a single quarter. **Q: How sustainable is GM strength? With refund tailwinds fading, how should we think about ticket dynamics in 2H? How does Marketplace expansion link to GM share gains?** A: A few dynamics stand out in Q1 GM. Refunds came in larger than expected and likely offered a macro lift, but not all gains were macro. The team executed well. Fashion was a highlight and pulled through adjacent categories such as home decor and beauty. **In beauty, 75% of growth came from new brands like La Roche-Posay, signaling real progress in broadening appeal across income levels. That said, Q1 likely did benefit from refunds.** Marketplace growth builds on our investments in speed over recent quarters and is not confined to a single category. As assortment depth expands and speed improves, both visits and purchase frequency are rising, which is crucial for membership and ads. **Ad revenue from 3P Marketplace sellers rose 50% YoY, reinforcing a flywheel — more assortment attracts more customers, which attracts more advertisers.** **Q: How is consumer behavior shifting? Can trading down by higher-end customers offset pressure on lower-end consumers as fuel squeezes wallets? Will food inflation and competition compress margins?** A: Consumers are bifurcated. Higher-income households remain confident across categories, while lower-income customers are tighter on budgets, with some facing financial stress. A telling datapoint: **our gas stations saw average gallons per fill dip below 10 for the first time since 2022, showing customers are stretching dollars.** On inflation, like-for-like price inflation was just over 1% in Q1, but egg deflation contributed ~100 bps. Ex-eggs, the rate was higher. As we lap last year’s high base for eggs in 2H, reported YoY inflation may tick up. Food categories rely heavily on fertilizers, and nitrogen/phosphate supply chains are tied to the Strait of Hormuz. If oil stays high, average prices could see upward pressure. **Q: Competitors are stepping up price investments to win share. Are you seeing intensifying price competition in the US? Where is the price gap, and what are your tariff assumptions?** A: This is a competitive market. In my 33 years here, pricing has been a top agenda every year, especially in food. This quarter we focused on the value we want to deliver, paired with an omnichannel experience that gives customers full control — in-store, curbside, to the door, even to the fridge. Over 7,000 Rollbacks are a strong customer-facing value signal, a clear acceleration vs. 5,000-5,500 in recent years. We will stick with EDLP, the foundation of long-term trust. We must earn business every day, and in times like these, value focus matters most — we are proud of our price gap. On tariffs, our merchandising teams broadly assume the current environment holds. **Q: Sparky’s lift to AOV is impressive. What are the user patterns by category and behavior? What are priorities to become ‘AI-native’? How do you balance AI investment between CX and supply chain?** A: Sparky’s growth is driven by feature expansion. It now spans app, web and store experiences, adding personalized replenishment, meal planning, and recommendations based on inventory, price and fulfillment capacity. Notably, **early Sparky use cases skewed to GM discovery.** As replenishment, meal planning and personalization rolled out, more customers began using Sparky for grocery and day-to-day consumables. As a result, **items purchased via Sparky rose over 4x QoQ.** **Q: Thirty-minute-or-less delivery now covers 60% of the US population — a big jump. Can you share total usage between 30- and 60-minute quick commerce? How will you pace rollout?** A: Q1 quick-commerce sales rose 50%+ YoY, driven by more users and higher AOV in that channel. Category penetration is improving as well, with GM’s share within quick commerce reaching a 5-year high. **A notable datapoint: we hit 1 mn cumulative drone deliveries in Q1, about 40% in this quarter alone, signaling acceleration. Average delivery time is just minutes. We operate 66 sites across TX, GA, NC and AR, covering millions of customers.** Stepping back, our 11,000 global retail nodes and proximity inventory are the backbone of omni. AI-driven data accelerates decisions and optimizes fulfillment. On automation — across fulfillment centers and regional DCs — we are about halfway through, with more investments underway, and deployment is much faster than a few years ago. **Q: Marketplace grew nearly 50%. Can you break down contributions from seller count, assortment expansion and AOV? What’s the rollout cadence and where are the biggest opportunities?** A: Marketplace revenue growth is fundamentally about deeper assortment, which in turn drives engagement. Candidly, Marketplace is still very early. Momentum is good, but the runway is long. As we bring in more sellers and items and get them to customers faster, the flywheel speeds up — more sellers bring more items, more items attract more customers — underpinning sustained growth. WFS deserves special mention. Same-/next-day WFS units rose 150% this quarter, showing that when sellers leverage our fulfillment, their business improves and so does ours. It is a win-win model and a real engine behind Marketplace acceleration. **Q: Health & Wellness slowed this quarter. What is the GLP-1 impact? Does GLP-1 pricing pressure free up spend for other categories?** A: The biggest factor was the Maximum Fair Pricing (MFP) law effective in Jan, a ~100 bps headwind to comps. Given H&W’s store-based nature, excluding MFP, store comps were actually positive. Ex-MFP, H&W grew mid-to-high single digits. Fundamentals remain strong: prescription volumes are up, and we’re taking Rx share. Pharmacy delivery resonates with customers, with ~20% of H&W deliveries arriving within 3 hours. We will stay focused on affordable, convenient care while expanding digital health capabilities. **Q: Can you discuss private label, especially in food and at Sam's?** A: Distinguish trends in GM vs. food. **Overall private-label penetration fell ~40 bps this quarter, with food down 100 bps+** due to eggs being a key PL item and lower egg prices pulling down PL food penetration. GM private-label penetration rose nearly 200 bps. At Walmart US, PL remains a key differentiator. Customers trust stalwarts like Great Value and Equate, while newer offerings like bettergoods and freshness guarantee help attract new, especially higher-income, customers. **Great Value just completed its first visual refresh in over a decade, improving shelf presentation in-store and online.** At Sam's, Member’s Mark has operated as the single PL for two years. The brand is co-created with the member community — half of new members are Millennials and Gen Z who engage actively, from colors to styles. Since Jan, 100% of Member’s Mark F&B products carry a ‘no additives’ label, a member-led change that is supporting renewals and new sign-ups. **Q: This is the first time in many quarters that category mix contributed positively to Walmart’s GPM. How do you view the opportunity? How much did GM vs. food mix drag GPM in past years?** A: We are pleased with Q1, the first time in at least 18 quarters that mix became a tailwind to GPM. Considering higher fuel costs masking some margin, underlying improvement is even greater. We do not expect the same magnitude in Q2, **partly because refund-driven GM lift may not repeat.** Over a longer horizon, GM is a key driver of margin expansion, and Marketplace is a critical enabler. As more 3P assortment flows through Marketplace, we can lean more into GM, which carries higher margins than food. It is a multi-year journey — Q1 was exciting, but not every quarter will look the same — and it shows we are on the right path. **Q: Q2 EBIT growth guidance implies acceleration vs. Q1, even with fuel headwinds all quarter. How should we understand the faster OP growth?** A: On a constant FX basis, we guide Q2 OP growth at 7%-10%. With a ~130 bps FX tailwind, at the top end, reported OP growth is near 11.5% — that is double-digit growth. There is some lapping benefit as last year’s Q2 had a high claims expense base. But the overall read is right: the areas of acceleration we highlighted in Q1 are indeed ramping intra-year. **You may recall we said last call that Q1 would be the toughest quarter for OP, with acceleration in Q2 and 2H,** which you are now seeing. **And we held guidance despite several hundred million dollars of fuel pressure.** **Q: Are higher fuel prices shifting behavior, e.g., more online? Any changes on the merch side?** A: We see subtle shifts. At Sam's fuel business, **May gallonage rose 12% YoY while the industry fell 5%, indicating consumers are actively seeking value.** Importantly, **fuel members spend 1.6x more across other categories than non-fuel members.** This shows why engagement matters — attractive price points are critical when wallets are tight, because they not only drive fuel but also the entire basket. **Risk disclosure and disclaimer:**[**Dolphin Research Disclaimer & General Disclosure**](https://support.longbridge.global/topics/misc/dolphin-disclaimer) ### Related Stocks - [WMT.US](https://longbridge.com/en/quote/WMT.US.md)