Walmart shares plunged nearly 10% after the retail giant reported its slowest U.S. comparable-sales growth in six years. Yet beneath that disappointing headline, the company raised its annual guidance, expanded profit margins and continued building higher-margin businesses that could make the selloff look excessive.
Why Walmart Shares Suddenly Fell Apart
Walmart entered its fiscal second-quarter report carrying a premium valuation and years of market-beating performance. Investors expected another nearly flawless quarter.
Instead, Walmart’s U.S. comparable sales increased 2.6%, excluding fuel, during the quarter ended July 31. That was down sharply from 4.1% in the previous quarter and 4.6% a year earlier.
Excluding the company’s health and wellness business, comparable sales grew 3.4%. Lower prices on certain Medicare prescription drugs weighed on the pharmacy business and reduced Walmart’s reported sales growth.
The slowdown was enough to send shares down nearly 10% on August 20, their largest single-day decline in almost five years. The stock remained more than 7% below its pre-earnings level at Wednesday’s close of $105.83.
Investors were also disappointed by the company’s outlook for the third quarter. Walmart expects sales to grow between 3% and 3.75%, with the timing of Flipkart’s Big Billion Days event creating an additional comparison issue.
Higher fuel expenses are applying pressure from two directions. They raise Walmart’s transportation and operating costs while leaving its lower-income customers with less money to spend on discretionary products.
Those concerns are real. The market’s response, however, may have overlooked much of what went right.
The Earnings Report Was Stronger Than the Stock Reaction Suggested
Walmart generated total second-quarter revenue of $187.9 billion, an increase of 5.9% from the previous year. Adjusted earnings reached 81 cents per share, up more than 19%.
Operating income climbed 28.8% to approximately $9.4 billion, helped by tariff refunds and stronger performance across several parts of the business.
Management also raised its fiscal 2027 outlook. Walmart now expects constant-currency net sales to increase between 4% and 5%, compared with its previous projection of 3.5% to 4.5%.
The company raised its forecast for adjusted operating-income growth from a range of 6% to 8% to between 7% and 8.5%. Projected adjusted earnings increased to between $2.80 and $2.87 per share.
This creates a striking contrast. Walmart beat its previous quarterly guidance, raised its annual sales and profit forecasts, expanded margins and continued gaining market share. The stock still suffered its worst day in years because one closely watched measure grew more slowly than investors expected.
That reaction says as much about Walmart’s former valuation and elevated expectations as it does about the condition of its business.
Walmart Is Quietly Becoming More Than a Retailer
The deeper investment story lies outside Walmart’s traditional store sales.
Retailing is an enormous but structurally low-margin business. Walmart’s scale gives it tremendous purchasing power, yet selling groceries and household products still produces relatively modest margins.
Walmart has spent years building businesses that generate more profit from the customer activity already flowing through its stores, websites and mobile applications.
Advertising Changes the Economics
Walmart’s advertising platform allows brands to pay for visibility across its digital properties and physical stores. These ads are valuable because Walmart knows what customers actually purchase, giving advertisers a direct connection between marketing activity and sales.
Advertising revenue typically carries much higher margins than grocery or general merchandise sales. Each advertising dollar can therefore contribute disproportionately to operating income.
As the platform grows, Walmart can produce faster profit growth even when comparable sales advance at a more ordinary rate.
Walmart+ Creates Recurring Revenue
Walmart+ membership fees add another attractive revenue stream. Memberships provide recurring income while encouraging customers to place more orders and use more Walmart services.
The strategic value reaches beyond the membership fee. A Walmart+ subscriber who regularly uses delivery, fuel discounts and online ordering becomes more deeply connected to the company’s ecosystem.
That can increase customer frequency while making it harder for competitors to win the household’s spending.
E-Commerce Is Strengthening the Store Network
Global e-commerce sales increased 23% during the quarter, driven by store-based pickup and delivery as well as Walmart’s expanding online marketplace. In the United States, online sales grew 24% and accounted for roughly 23% of the company’s business.
Walmart’s physical stores have evolved into fulfillment centers located close to millions of American households. This gives the company an advantage that digital-only competitors would have to spend heavily to reproduce.
The stores can support walk-in traffic, curbside pickup and home delivery from the same inventory network. That improves convenience while allowing Walmart to spread its fixed costs across more transactions.
The Market May Be Focusing on the Wrong Growth Number
Investors traditionally use comparable-store sales to measure a retailer’s momentum. That metric becomes less complete as more purchases move between stores, mobile applications, marketplaces, delivery services and memberships.
For Walmart, the quality of each sale is increasingly important.
A grocery purchase accompanied by advertising revenue, a membership fee or a marketplace commission can be more valuable than a larger conventional store purchase. Slower comparable-sales growth does not automatically translate into weaker long-term economics if Walmart continues expanding these higher-margin income streams.
That is the central question following the selloff: Is Walmart becoming a slower retailer, or is it becoming a more profitable commercial platform?
The second-quarter results provide evidence for the latter interpretation. Revenue increased 5.9%, adjusted earnings rose at a double-digit rate and adjusted operating income grew faster than sales.
Walmart’s future earnings may depend increasingly on how effectively it monetizes its customer traffic, rather than how quickly it adds traditional retail revenue.
The Price-Cut Strategy Could Strengthen Walmart’s Moat
Walmart received approximately $2.9 billion in tariff refunds during the quarter. Management plans to reinvest much of that benefit into lowering prices and improving the customer experience.
That decision limits the amount of temporary profit Walmart can retain today, but it could create a more durable competitive advantage.
Smaller retailers facing pressure from fuel, labor, tariffs and inventory costs have less room to reduce prices. Walmart can use its enormous scale and financial resources to absorb some of that pressure, attract price-sensitive consumers and capture additional market share.
Management said it was lowering prices on thousands of products, including categories where customers were feeling particular pressure.
This approach could support third-quarter sales while reinforcing Walmart’s reputation for value. It could also put competitors in a difficult position. They may have to accept lower margins to match Walmart’s prices or risk losing customers.
The investment payoff would come later through greater traffic, stronger loyalty and more opportunities to sell advertising, memberships and marketplace services to a larger customer base.
Is Walmart Stock Finally Cheap?
Following the decline, Walmart trades at less than 33 times expected earnings for the next fiscal year. That is below its five-year average of roughly 35 times, although it remains expensive relative to the broader market and many traditional retailers.
The valuation leaves little room for prolonged weakness. Investors purchasing the stock are still paying for Walmart’s defensive characteristics, market-share gains and expanding higher-margin businesses.
D.A. Davidson analyst Michael Baker has set a $132 price target, which represents approximately 25% upside from Wednesday’s closing price. His bullish view partly reflects Walmart’s decision to use tariff refunds to reduce prices and pursue additional market share.
Consensus estimates call for fiscal 2028 earnings of approximately $3.23 per share, representing another year of double-digit growth. If Walmart delivers that growth, the post-earnings decline may have removed much of the immediate valuation risk.
The bear case deserves equal attention. Comparable-sales growth could remain subdued, energy costs may continue pressuring shoppers and Walmart’s valuation could fall closer to that of a conventional retailer. A premium multiple becomes harder to defend if earnings growth slows materially.
A Slowing Economy Could Eventually Help the Stock
Walmart’s exposure to financially pressured consumers creates an immediate risk, particularly when fuel and food prices rise at the same time.
Yet Walmart has historically benefited when consumers become more cautious.
The stock gained approximately 18% in 2008 while the S&P 500 fell roughly 38%. It also remained resilient during the initial pandemic selloff in February and March 2020.
Economic pressure often pushes consumers toward lower-priced retailers. Higher-income households may also shift more of their grocery and household spending to Walmart when confidence deteriorates.
That defensive appeal can turn Walmart into a haven during a slowdown. The same economic weakness currently weighing on discretionary purchases could eventually increase the company’s market share and attract investors seeking dependable earnings.
The Investment Case
Walmart’s quarter revealed a slowdown in one of Wall Street’s favorite retail indicators, but it did not show a company losing control of its business.
Revenue grew, earnings increased, margins expanded, market share improved and management raised its annual guidance. Meanwhile, e-commerce, advertising and membership revenue are gradually changing how the company earns money.
The stock still carries a premium valuation, and a quick rebound is far from guaranteed. Persistent inflation, high fuel prices and cautious consumers could keep shares under pressure.
For patient investors, the nearly 10% decline has created a more attractive entry point into a dominant retailer with growing digital advantages and strong defensive characteristics. Walmart may need several quarters to prove that the slowdown is temporary, but the underlying business appears considerably healthier than the share-price reaction suggests.
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