Walmart Q2 Fiscal 2027 Earnings: Digital Profit Mix Supports Higher Full-Year Outlook

Walmart’s second-quarter results were broadly strong, with constant-currency sales growth reaching the top end of guidance and adjusted operating income rising 17.4%. The headline profit growth was materially helped by tariff refunds, but management said underlying operating income growth still reached the top end of its prior 7% to 10% outlook range.

The more important development is the continued shift in Walmart’s earnings mix. E-commerce, advertising, marketplace, fulfillment and membership businesses are growing faster than core retail and supporting improved digital margins, while the company uses much of its tariff-refund windfall to fund lower prices and defend market share.

As Reported on the Call

The Bigger Story

Walmart is increasingly trying to make price investment and digital monetization reinforce each other. The company used tariff refunds to fund more than 11,000 rollbacks, up from 7,200 at the end of the first quarter, with investments spread across grocery, consumables, general merchandise and seasonal categories.

That decision reduces near-term margin visibility, particularly in the third quarter, but reflects management’s effort to translate a non-recurring benefit into longer-term traffic and market-share gains. Walmart said the bulk of its price actions began late in the second quarter, meaning the full-quarter effect of those investments will be more apparent in Q3.

At the same time, the company’s higher-margin commerce businesses are becoming more material. Advertising grew 38%, marketplace sales rose 52%, and membership income increased nearly 17%. Management said nearly half of its operating-income growth excluding tariffs came from businesses including membership, advertising and marketplace.

The central question is whether this mix shift can offset the structural costs of faster delivery, continued technology investment and a more value-conscious consumer. So far, Walmart’s U.S. e-commerce business is showing improved economics, with double-digit incremental margins in the first half.

Revenue and Operating Performance

Enterprise sales grew 5% in constant currency, supported by Sam’s Club U.S., International and e-commerce. Walmart U.S. comparable sales increased 2.6% excluding fuel, slightly below management’s initial expectation because of a larger-than-expected headwind in health and wellness.

The underlying U.S. retail business appears stronger than the headline comp suggests. Management said core merchandise categories, excluding health and wellness, have generally produced quarterly comparable-sales growth in the 3% to 4% range over the past 2.5 years. In the second quarter, the company continued to gain market share, grow transactions and increase unit volumes.

Health and wellness remains the largest distortion in the reported U.S. comp. Walmart said maximum fair pricing regulations, including deflation and branded-to-generic drug conversions, reduced second-quarter U.S. comparable sales by roughly 125 basis points. The company now expects a similar 125-basis-point full-year headwind, up from its prior estimate of 100 basis points.

That top-line pressure follows two years in which sales of GLP-1 branded drugs added about 100 basis points annually to Walmart U.S. comps. In fiscal 2027, management expects the GLP-1 benefit to be roughly half that level as prescription growth is offset by price and mix pressure.

The important distinction is that Walmart characterized the health and wellness impact as primarily a sales issue rather than a deterioration in the business’s profitability. Prescription volumes are still growing, management said, and health and wellness customers remain valuable: the company said they spend about three times more than the average Walmart customer. Customers who also use pharmacy delivery spend nearly twice as much again, according to management.

International sales increased nearly 8% in constant currency, led by 9.7% growth in China. International e-commerce grew 19%, with growth in China, India and Canada. Walmart also expanded its U.S. marketplace platform to Mexico and Canada and launched Walmart+ in Canada, extending its strategy of building digital capabilities centrally and deploying them across markets.

Profitability and Margins

Adjusted operating income rose 17.4% in constant currency, while adjusted EPS increased more than 19%. However, the reported operating-income growth included a substantial benefit from tariff refunds.

CFO John David Rainey said the refunds added approximately 750 basis points to operating-income growth in the quarter. Excluding that benefit, management said underlying operating-income growth was at the top end of its prior 7% to 10% full-year guidance range.

The company received substantially all of approximately $2.9B in tariff refunds for which it was eligible. Rather than retaining the full benefit, Walmart is reinvesting much of it into prices and customer experience. That choice should make third-quarter operating-income growth look relatively muted: management expects Q3 constant-currency operating income growth of 2% to 4%.

Management encouraged investors to assess Q2 and Q3 together. Based on its outlook, reported operating-income growth across those two quarters would average about 10% per quarter. That framing is reasonable given the unusual timing of the refunds and related price investments, though it also means the second-quarter 17.4% growth rate is not a clean run-rate indicator.

Underlying margin progress remains the more durable part of the story. Walmart U.S. e-commerce achieved double-digit incremental margins in the first half, helped by advertising and membership revenue, delivery-network density, automation and fee-based fast delivery. Fee-based deliveries represented a record 37% of store-fulfilled deliveries during the quarter.

Walmart said more than 50% of its e-commerce fulfillment volume now moves through automated facilities, while 3,100 U.S. stores are served by some form of automated freight. These investments carry near-term depreciation expense, but management views them as necessary to improve fulfillment speed and long-term digital economics.

SG&A also faced pressure from higher depreciation, increased self-insurance costs and group-health expense. Management said roughly two-thirds of the first-half increase in self-insurance-related costs came from group health, partly because lower associate attrition increased enrollment in company health plans.

Demand, Customers and Pricing

Walmart described the consumer environment as somewhat softer than it had expected at the start of the year, particularly as fuel prices rose above $4 during June. Management said customers made more visible trade-offs during that period, although it did not identify a broad deterioration in demand.

The company’s response has been to lean harder into price. Walmart ended the quarter with more than 11,000 rollbacks, compared with a more typical level of about 5,000, according to management. The rollback activity included food and consumables, where lower prices tend to drive unit gains before creating more durable market-share gains.

Management said July improved and that back-to-college demand has been particularly strong. General merchandise growth slowed relative to the first quarter, which management partly attributed to the prior quarter’s benefit from tax-refund-related stimulus payments and higher fuel costs in Q2. Still, Walmart cited strength in toys, fashion, pantry, fresh and college-related home products.

The customer mix also remains favorable. Walmart continued to report gains among higher-income households, helped by broader assortment and more elevated brands. However, price investments are especially relevant for lower-income customers facing higher fuel costs and continued pressure on household budgets.

E-commerce remains a key demand and engagement driver. Global e-commerce sales rose 23%, and fast delivery in the U.S. grew 48%. Walmart expanded sub-30-minute delivery to 38 U.S. markets and said 80% of e-commerce orders are fulfilled by stores. The company views stores less as a standalone sales channel and more as local fulfillment infrastructure supporting pickup, delivery and in-store purchases.

What is Walmart’s guidance and outlook?

Walmart raised its fiscal 2027 sales-growth outlook to 4% to 5%, from 3.5% to 4.5%. It also raised expected operating-income growth to 7% to 8.5%, from 6% to 8%, and increased its EPS outlook to $2.80 to $2.87 from $2.75 to $2.85.

For the third quarter, management expects enterprise sales growth of 3% to 3.75% and EPS of $0.62 to $0.64. The Q3 sales outlook includes a timing headwind of more than 100 basis points from lapping the prior-year timing of Flipkart’s Big Billion Days event. Management expects a roughly comparable benefit to Q4 growth from this year’s event.

Walmart expects Sam’s Club U.S. and International to remain accretive to enterprise growth in both Q3 and Q4. It also expects Walmart U.S. growth to improve in Q3 as price investments support customer value and share gains.

The outlook assumes tariff rates and fuel prices remain near current levels. Fuel is a notable risk factor: management now expects more than $2B of incremental fuel-related costs this year beyond its original guidance assumptions. The acquisition and integration of Vibe is also expected to reduce full-year operating-income growth by approximately 20 basis points.

Balance Sheet, Cash Flow and Capital

Inventory rose 6% in constant currency, modestly faster than enterprise sales growth. Management attributed the increase to cost inflation and inventory positioned to support strategic initiatives, including the optimization of inventory across fulfillment nodes.

Walmart said most U.S. merchandise categories were in good shape, with inventory generally up 1% to 4%. Consumables were at the high end, though management characterized that category as fast moving and did not identify a material inventory risk.

The company increased expected capital expenditures to approximately 4% of annual net sales, reflecting spending on supply-chain automation, fulfillment capacity, technology, new stores and remodels. Despite the higher CapEx outlook, management expects double-digit free-cash-flow growth for the year.

What Investors Should Watch

1. U.S. Comparable-Sales Acceleration

Management expects Walmart U.S. growth to improve in Q3 as recent price cuts gain traction. Investors should watch transactions and unit growth, rather than headline comp alone, because health and wellness pricing will continue to distort reported sales comparisons.

2. Returns on Tariff-Funded Price Investments

The $2.9B tariff refund is largely a one-time benefit. The key test is whether the related rollbacks create sustained food and consumables share gains after the refund-funded investment period ends.

3. Digital Margin Expansion

Walmart U.S. e-commerce produced double-digit incremental margins in the first half. Continued advertising growth, marketplace adoption, fulfillment-services penetration and delivery density would support management’s case that digital can become increasingly accretive to company-wide margins.

4. Fuel Costs and Consumer Trade-Down

Management expects more than $2B in incremental fuel-related costs this year and acknowledged greater consumer pressure in June. Fuel prices could affect both household spending patterns and Walmart’s own operating costs.

5. Health and Wellness Sales Headwinds

Maximum fair pricing regulation is now expected to reduce Walmart U.S. comparable sales by about 125 basis points for the year. Investors should monitor whether prescription-volume growth and high customer spend offset the reported sales drag over time.

AlgovestIQ Takeaway

Walmart’s second quarter reinforced that the company is no longer relying solely on low-margin retail sales growth. The business is adding faster-growing, higher-margin revenue streams through advertising, marketplace services, fulfillment and membership, while its e-commerce operation is showing improving incremental profitability.

The headline operating-income growth rate requires adjustment. Tariff refunds provided a significant benefit in Q2, and management is deliberately deploying much of that windfall into customer pricing. As a result, the 17.4% adjusted operating-income increase should not be treated as a normalized quarterly growth rate, and Q3 profitability will absorb more of the reinvestment.

Still, the underlying business appears resilient. Core U.S. merchandise sales remain in a relatively steady 3% to 4% range excluding health and wellness, Sam’s Club continues to gain customers and transactions, and China and e-commerce remain meaningful growth contributors. The raised full-year outlook, despite higher fuel costs and a softer consumer backdrop, signals management’s confidence in those trends.

What remains unresolved is the durability of growth once the tariff-refund benefit is exhausted and price investments are lapped. Walmart’s investment case increasingly depends on whether market-share gains, digital margin expansion and platform monetization can sustain profit growth above sales growth without requiring continually elevated price investment.

Evidence of accelerating U.S. transactions, stable share gains in food and consumables, and continued double-digit digital incremental margins would strengthen that thesis. A weaker-than-expected response to rollbacks, persistent fuel-cost pressure, or a slowdown in advertising and marketplace growth would make the margin-expansion case less certain.