Walmart Earnings: Sales Soar While Profits Sputter

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $64.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Earnings

Walmart’s WMT fiscal 2026 second-quarter sales were up 4.6% in its US stores on a comparable basis, reflecting a 1.5% benefit from transactions and a 3.1% increase in average ticket. Gross margin expanded just 4 basis points to 24.5%.

Why it matters: Despite consumers’ financial constraints, Walmart posted solid top-line marks, illustrating the benefits of its scale, attractive price positions, and convenient digital shopping options, which stand to yield further market share gains.

• Even as tariffs add to costs in some aisles, the firm noted strength in discretionary categories such as apparel, media, gaming, and automotive, with general merchandise up low single digits.
• Management raised its fiscal 2026 outlook to 3.75%-4.75% (from 3.00%-4.00%) for sales growth and $2.52-$2.62 (from $2.50-$2.60) for adjusted earnings per share, generally squaring with our forecast.

The bottom line: We don’t foresee a change to our $64 fair value estimate for wide-moat Walmart. Although the shares fell by mid-single digits in Aug. 21 trading, we view them as pricey, trading more than 50% above our valuation.

• We attribute the market’s displeasure to Walmart’s lack of cost leverage on its recent sales gains. But we see this as an anomaly, pressured by costs around injury claims, and expect investments in supply chain automation to bolster its cost edge over time.
• Longer term, we believe the market is far too zealous as it pertains to Walmart’s ability to maintain outsize sales growth amid intense competition.

Between the lines: Investments to enhance the omnichannel offering are bearing fruit, with e-commerce sales up 25% in the quarter, an acceleration from the low 20s that had historically characterized the business.

• Engaging customers digitally while keeping compelling pricing gaps should bode well for long-term customer retention. We think these efforts have been a driving force for recent market share wins with higher-income households.