Walmart's stock (WMT) released its Q2 earnings on August 21, 2025. Despite strong revenue and upward guidance, the market focused on the adjusted EPS miss. Pre-market trading saw an immediate 3% drop upon earnings release, with intraday declines reaching nearly 5%, closing at $97.63, indicating algorithmic trading and investors' initial reactions were entirely fixated on the earnings miss. Below is a detailed analysis of Walmart’s earnings report:

Earnings Highlight

· Revenue: Walmart achieved total revenue of $177.4 billion this quarter, up 4.8% year-over-year, significantly surpassing analysts’ consensus expectations of $174.11 billion.

· Earnings: The adjusted EPS for the quarter was $0.68, falling short of Wall Street’s widely expected $0.73.

Core Metrics Performance

Revenue: Strong Momentum Across All Segments

Walmart’s revenue growth this quarter was broad-based, with all three business segments (Walmart U.S., Sam’s Club, and Walmart International) exceeding expectations. Critically, revenue growth was not solely driven by price inflation but primarily by increased customer transactions and unit sales volume, indicating more customers shopped at Walmart more frequently and purchased more items, including successfully attracting and retaining high-income shoppers. Additionally, membership fees and other income rose 5.4% to $1.65 billion, further highlighting the growing importance of recurring revenue streams to overall performance.

Earnings: Mixed Results

Despite strong revenue performance, the company’s profitability was significantly pressured by non-recurring items, with GAAP operating income declining 8.2% year-over-year to $7.3 billion, primarily dragged down by a $450 million settlement expense and business restructuring costs. The adjusted EPS was $0.68, up 1.5% year-over-year but below expectations, impacted by legal matters ($0.05 per share), restructuring charges ($0.01 per share), and high self-insured liability claims (affecting operating income growth by approximately 560 basis points). Gross margin increased slightly by 4 basis points, benefiting from Walmart U.S.’s inventory management and business optimization, but SG&A expense growth outpaced sales, putting pressure on profitability. Excluding currency and one-time items, adjusted operating income grew slightly by 0.4%, reflecting the resilience of the core business. Overall, earnings were impacted by non-operating factors, but the core retail business performed steadily.

Segment Performance: Drivers of Growth

· Walmart U.S.: The Walmart U.S. segment performed strongly, with net sales up 4.8% to $120.9 billion. Comparable store sales (excluding fuel) grew 4.6%, exceeding market expectations, driven by a 1.5% increase in transaction volume and a 3.1% rise in average ticket size. Grocery, health, and wellness categories led the growth. E-commerce sales surged 26%, contributing approximately 420 basis points to growth, with store-fulfilled delivery, third-party marketplace, and advertising as key drivers. Operating income rose 2.0% to $6.7 billion, benefiting from improved inventory management and e-commerce profitability, though partially offset by claims expenses, highlighting the strong competitiveness of its omnichannel strategy.

· Sam’s Club: Sam’s Club saw net sales increase 3.4% to $23.6 billion, with comparable store sales (excluding fuel) up 5.9%, driven by a 3.9% increase in transaction volume and a 2.0% rise in average ticket size. Membership fee income grew 7.6%, driven by membership growth, high renewal rates, and increased penetration of “Plus” memberships. E-commerce sales rose 26%, accounting for 18% of net sales. Operating income fell 15.8% to $489 million, dragged down by an $80 million supply chain restructuring charge and high claims expenses, but the core membership model continued to show strong momentum.

· Walmart International: The international segment saw net sales increase 5.5% to $31.2 billion, impacted by $1.5 billion in currency fluctuations, with constant-currency growth of 10.5% to $32.7 billion. China (comparable sales up 21.5%, e-commerce up 39%), Walmex, and Flipkart performed strongly, with growth driven by transaction volume and unit sales. E-commerce grew 22%. Operating income fell 9.8% to $1.2 billion, with the decline narrowing to 2.8% on a constant-currency basis, affected by strategic investments in India, Canada, and Mexico, as well as currency impacts, but core growth potential remained robust.

E-commerce and Membership: Walmart’s Digital Dominance

Global e-commerce sales surged 25%, exceeding analysts’ expectations of 17.2%, with all segments posting growth above 20%, driven by store-fulfilled delivery and marketplace platforms.  Advertising revenue grew 46%, and even excluding the VIZIO acquisition, Walmart Connect grew 31%, highlighting the strong momentum of its retail media network. Membership fee income rose 15.3%, with Sam’s Club up 7.6%, Walmart+ membership growing double digits, and international membership income up 27%. These high-margin businesses create a virtuous cycle with core retail operations, solidifying Walmart’s omnichannel dominance.

Future Outlook

Walmart raised its FY2026 guidance, expecting full-year net sales (constant currency) growth of 3.75%-4.75%, up from the prior 3%-4%, and adjusted EPS raised from $2.50-$2.60 to $2.52-$2.62. Q3 adjusted EPS is expected to be $0.58-$0.60, slightly above analysts’ consensus of $0.57.

Despite $750 million in unexpected cost pressures, CFO John David Rainey stated that Walmart maintained and raised its earnings guidance through operational excellence, demonstrating confidence in organic growth. CEO Doug McMillon emphasized mitigating tariff impacts through innovative sourcing and merchandising strategies to maintain low prices long-term, while acknowledging a slow rise in cost trends. Consumer price sensitivity remains high, especially among low- and middle-income households. Additionally, management highlighted progress in supply chain automation and generative AI, with the company developing AI “super agents” like the shopping assistant “Sparky” to optimize experiences for customers, employees, and suppliers, underscoring a strategic focus on technology-driven efficiency and growth.

Despite the earnings miss, management raised FY2026 guidance. The rapid growth of high-margin businesses like advertising and membership provides strong tailwinds for overall profitability, absorbing hundreds of millions in unexpected operating costs while still targeting higher annual profit goals.

Don't Miss Walmart's Aug 21 Earnings: $0.73 EPS Forecast, Grocery + E-Com Dual Engines – Unlimited Upside Potential?

TradingKey - Walmart's stock price has shown an overall fluctuating upward trend since the release of its first-quarter earnings report, benefiting from investors' favoritism towards Walmart as a defensive stock, as well as expectations for its stable growth in e-commerce and grocery businesses. Walmart's FY2026 Q2 earnings report will be released before the U.S. stock market opens on August 21, 2025. Below are the expectations for its revenue and earnings per share:

· Revenue Expectation: Based on analyst consensus, the average revenue expectation for this quarter is $174.11 billion, with a year-over-year growth rate of approximately 4% (compared to $167.77 billion in the same period last year).

· EPS Expectation: The average EPS expectation is $0.73, with a year-over-year growth rate of approximately 9% (compared to $0.67 EPS in the same period last year).

These expectations reflect the market's optimism about Walmart's continued growth in grocery and e-commerce sectors, but also take into account the impacts of slowing consumer spending and potential tariff pressures.

Key Investor Focus Areas

When paying attention to Walmart's FY2026 Q2 earnings report, investors should focus on the following fundamental information, as these factors will directly affect the company's short-term performance and long-term valuation:

Consumer Spending and Inflation Trends: Pay attention to comparable store sales growth (especially in grocery and essentials departments) and changes in consumer behavior, such as whether they continue to shift towards low-priced goods or reduce purchases of non-essentials. If inflation eases but consumer spending remains weak (such as affected by high interest rates), it may lead to revenue falling short of expectations, negatively impacting the stock price; conversely, if Walmart maintains market share through pricing strategies, it will strengthen its defensive position and boost investor confidence.

E-commerce and Digital Business Growth: Focus on the proportion of online sales, Walmart+ membership growth, and advertising revenue. E-commerce achieved profitability in Q1, and if Q2 continues strong growth (including digital payments and third-party services as expected), it will drive overall revenue diversification and positively boost valuation; however, if growth slows down due to competition (such as from Amazon), it may expose challenges in digital transformation, leading the market to adjust expectations.

Gross Margin and Operating Costs: Investors need to pay attention to changes in gross margin, supply chain efficiency, and labor costs. Potential tariff increases (such as on imported goods) may drive up costs, squeezing profit margins and causing EPS to fall short of expectations, triggering a stock price pullback; if the company mitigates the impact through domestic sourcing or efficiency improvements, it will demonstrate operational resilience and support stock price upside.

Future Guidance and Macroeconomic Insights: Investors should closely monitor Walmart's updated guidance for full-year revenue and EPS, as well as its comments on the macroeconomic outlook, such as key factors like supply chain disruptions and consumer confidence levels. If the company provides optimistic guidance, it will further strengthen its growth narrative and may drive continued stock price increases; conversely, if the outlook is more conservative, it may trigger market selling pressure, especially under the current high valuation of 44 times price-to-earnings ratio, which would amplify downside risks and test investor confidence.

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