To The Moon

Walmart’s latest quarter reaffirmed its role as a bellwether for U.S. consumers, though the stock fell 4.5% post-earnings. Headline sales were solid, but EPS missed expectations, highlighting pressure in its cost structure.

Earnings Highlights

• Revenue: $177.4B (+4.8% YoY; $178.9B constant-currency, +5.6%) with a ~$1.5B FX headwind.

• EPS: Adj. $0.68 (vs. $0.74 cons.), with operating income down 8.2% reported but flat ex-FX (+0.4%).

• Growth Drivers: Global eCommerce +25%, advertising +46% (U.S. +31%), membership income +5.4% (fees +15%).

• Guidance: FY net sales growth raised to 3.75–4.75%; FY26 EPS $2.52–$2.62; Q3 EPS $0.58–$0.60.

U.S. Operations
Sales rose 4.3% to $111B, with comps +3.4% on 4% traffic growth, partially offset by a -0.6% basket size. Grocery continues to lead, while discretionary categories (apparel, home) remain weak under soft demand and deflationary pricing. U.S. operating income climbed nearly 10%, showing cost discipline and efficiency gains even as consumers spend more selectively.

Sam’s Club
Net sales rose 3.4% to $23.6B, with comps +5.9% ex-fuel. Membership growth was strong (+7.6%), boosting recurring revenue and customer loyalty. Transactions rose 3.9% and average ticket +2%, with eCommerce adding 350 bps to comps. However, operating income declined 15.8% to $0.5B (-2.1% adj.), as higher costs to support digital growth and promotions weighed on margins.

International
Sales reached $32.7B (+10.5% CC, +5.5% reported), led by Mexico, China, and Flipkart. eCommerce grew 22%, while membership income surged 27%. Profitability, however, lagged: gross margin contracted 80 bps to 21.6%, and operating income fell 10% reported (-2.8% CC), reflecting higher wages and investment in key markets alongside FX headwinds.

Consumer & Macro View
U.S. shoppers remain resilient but cautious. Traffic is rising, yet average spend is slipping, reflecting a shift from discretionary to essential categories. This mirrors commentary from peers like Target and Home Depot, as households manage budgets week-to-week under the weight of higher credit card rates.

Trade tariffs present another risk. Walmart’s import-heavy supply chain makes it vulnerable to renewed cost pressures, despite its history of offsetting tariffs through supplier negotiations and selective pricing.

Valuation Context

• $Wal-Mart(WMT)$: P/E ~39x, EV/EBITDA ~20x, PS 1.2 → balanced but not cheap, supported by eCommerce, advertising, and international growth.

• $Costco(COST)$: Premium at >50x P/E, EV/EBITDA ~34x, PS 1.6 → justified by its membership model and strong moat, though PEG (6x) looks stretched.

• $Target(TGT)$: Discounted at 11–13x P/E, EV/EBITDA ~7.6x, PS 0.4 → valuation attractive, but reflects weaker growth and heavier reliance on discretionary categories.

Walmart falls after eating some tariff costs; Target and Costco also lower
Top-line momentum remains robust, but EPS fell short as Walmart absorbed tariff and cost pressures. Still, its scale, pricing power, and omnichannel execution position it better than peers to navigate consumer uncertainty and potential trade disruptions. Among U.S. big-box retailers, Walmart offers a balance of stability and growth, Costco commands a premium, and Target remains the value play with higher risk.