Walmart’s “Revenue Up, Profits Down” Alarm — Tariffs Bite Into Margins

TradingKey - Retail giant Walmart (WMT.US) reported its second-quarter results for fiscal 2026 this week, delivering strong top-line growth but falling short on profitability — raising concerns about mounting cost pressures. As of this report, Walmart’s U.S. shares were down 3.5% in pre-market trading.

The company reported:

• Q2 net sales of $177.4 billion, up 4.8% year-over-year, exceeding the consensus estimate of $176.16 billion. The beat was driven by solid comparable store sales in the U.S. and strong performance at Sam’s Club.

However, beneath the strong revenue, profitability weakened.

• Adjusted EPS of $0.68 came in below the expected $0.74.

Market analysts attribute the miss primarily to rising operating costs, particularly supply chain pressures from new U.S. tariffs. Increased production and shipping costs on imported goods have squeezed margins. While Walmart has implemented supply chain optimizations and expanded its private-label offerings to mitigate the impact, it has not yet been able to fully pass through these costs — leading to margin compression.

Despite the profit shortfall, Walmart remains optimistic about the full year. The company has raised its fiscal 2026 full-year net sales growth forecast to 3.75%–4.75% and maintains its adjusted EPS guidance at $2.52–$2.62.

For Q3, Walmart expects:

• Net sales growth of 3.75%–4.75%
• Operating profit growth of 3.0%–6.0%, broadly in line with its full-year outlook

Notably, the company held its full-year adjusted operating profit growth guidance at 3.5%–5.5%, signaling its commitment to balancing top-line expansion with cost discipline.

In a statement, Walmart’s CEO said: “Despite the impact of tariffs, we’re committed to keeping prices low for as long as possible. We expect tariff-related costs to rise further in the third and fourth quarters.”

Overall, Walmart continues to demonstrate resilience amid macroeconomic volatility, leveraging its massive scale and operational efficiency. However, external headwinds — especially tariffs — are increasingly eroding profitability, posing a significant risk to its growth outlook.

Investors will be watching closely whether Walmart can improve its earnings performance in the next quarter to deliver on its raised full-year expectations.