Walmart Lifts Outlook as Tariff Refunds Fuel Profit Surge

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• WMT

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Walmart (WMT) reported second-quarter results that showed a widening gap between its top-line trajectory and its profitability, as tariff refunds and a shift in business mix powered a sharp acceleration in operating income even as comparable-store sales in its home market slowed [1][2].

Consolidated revenue grew 5.9% in the quarter ended July 31, decelerating from 7.3% in the first quarter, with constant-currency growth of 5.1% also easing from the prior period's 5.9% [1][3][4]. The top-line slowdown was most visible in Walmart U.S., where comparable sales excluding fuel fell to 2.6% from 4.1% in the first quarter [1][2][3]. Health and wellness represented an 80-basis-point headwind, while pharmacy deflation tied to new maximum fair price regulations represented a 125-basis-point drag [2][5]. Average ticket growth in the U.S. business slowed to 1.1% from 3.1% a year earlier, while transaction counts held steady at 1.5% [2].

Profitability told a different story. Consolidated operating income surged 28.8% on a reported basis and 17.4% on an adjusted, constant-currency basis, a sharp acceleration from 5.1% adjusted growth in the first quarter [1][3][4]. The gross profit rate expanded 96 basis points, compared with just 6 basis points in the prior quarter, primarily due to tariff refund impacts [1][6][4]. In Walmart U.S. alone, operating income grew 20.6%, with the segment's gross margin widening to 29.4% from 27.9% a year ago on tariff refunds and improved business mix [2][7].

The tariff benefit was not without offsets. Walmart U.S. operating expenses deleveraged 72 basis points, reflecting higher claims expense, depreciation, and associate healthcare costs [2]. Internationally, gross margin compressed slightly to 21.4% from 21.6%, and constant-currency operating income growth decelerated to 5.7% in the second quarter from an 8.0% pace in the first half [2][7].

Sam's Club emerged as a standout on the profit side. The warehouse chain's operating income surged 44.3% on a reported basis and 23.3% adjusted, accelerating from 11.2% adjusted growth in the first half, aided by tariff refunds and membership gains [8][7]. Comparable sales excluding fuel slowed to 4.4% from 5.9% a year earlier, but transaction counts accelerated to 7.0% from 3.9%, even as the average ticket declined 2.5% versus a 2.0% gain a year ago [8]. Gross margin expanded to 11.4% from 10.9% [7].

Global eCommerce growth decelerated to 23% from 26% in the first quarter, though store-fulfilled pickup and delivery and marketplace continued to lead the gains [1][3][4]. The digital channel's contribution to Walmart U.S. comparable sales rose to roughly 510 basis points from about 420 basis points a year ago, and Sam's Club saw a similar expansion to roughly 450 basis points from 350 [2][8].

Advertising and membership fees, two pillars of Walmart's higher-margin ancillary revenue, held their pace. Global advertising grew 38%, roughly in line with the prior two quarters, while Walmart U.S. advertising accelerated slightly to 38% from 36% [1][3][4]. Membership fee revenue grew 17%, consistent with recent quarters [1][6][4].

On the bottom line, GAAP earnings per share declined 9.1% to $0.80, dragged down by a $1.2 billion net loss on equity and other investments compared with a $2.7 billion gain a year earlier [1][9]. Adjusted EPS was $0.81. Interest expense net of investment income fell 74.7% to $171 million, reflecting benefits from debt restructuring [9].

Free cash flow decreased $1.4 billion to $5.5 billion for the first half, while operating cash flow rose $1.4 billion to $19.7 billion [10][11]. Capital expenditures climbed to roughly 4.0% of net sales, up from the company's original full-year target of about 3.5% set in February [11]. Global inventory growth slowed to 6.7% from 8.9% in the first quarter, reflecting tighter inventory management [10][6].

Walmart raised its full-year guidance across the board. Full-year expectations are for constant-currency net sales growth of 4.0% to 5.0%, up from 3.5% to 4.5%; adjusted operating income growth of 7.0% to 8.5% on a constant-currency basis, up from 6.0% to 8.0%; and adjusted EPS of $2.80 to $2.87, up from $2.75 to $2.85 [1][11][4]. For the third quarter, guidance is for constant-currency sales growth of 3.0% to 3.75%, which includes a headwind of more than 100 basis points from a timing shift in Flipkart's Big Billion Days event, and adjusted EPS of $0.62 to $0.64 [1][11].

The company repurchased $5.1 billion of shares year to date through the second quarter, retiring 42.3 million shares, with $25.1 billion remaining on a $30 billion authorization approved in February [10].

Citations

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