Walmart Earnings: Digital Scale Fuels Margin Expansion
- 21 hours ago
- 4 min read
TL;DR
Revenue Strength: Q4 revenue rose 5.6% as eCommerce jumped 24% and U.S. comps held at 4.6%.
Margin Trends: Operating income grew 10.8%, outpacing sales for the third straight year.
Forward Outlook: FY27 operating income guided to grow 6%–8%, with continued mix and automation tailwinds.
Business Overview
Walmart Inc. (NYSE: WMT) is a people-led, tech-powered omnichannel retailer operating more than 10,900 stores and digital platforms across 19 countries, serving approximately 280 million customers weekly. Fiscal year 2026 revenue totaled $713 billion.
The company operates through three primary segments:
Walmart U.S. – The largest division, spanning grocery, general merchandise, health & wellness, and growing digital services.
Walmart International – Operations across key markets including Mexico (Walmex), China, Canada, and India (Flipkart).
Sam’s Club U.S. – Membership warehouse club with expanding omnichannel capabilities.
Increasingly, Walmart’s profit mix is shaped by higher-margin businesses such as advertising (Walmart Connect), marketplace services, and membership programs including Walmart+ and Sam’s Club.
Walmart Earnings Performance
Revenue
Fourth Quarter FY26
Total revenue: $190.7 billion, up 5.6% reported (+4.9% constant currency).
eCommerce sales: +24% globally.
Walmart U.S. comp sales (ex-fuel): +4.6%.
International net sales (cc): +7.5%.
Sam’s Club U.S. comp sales (ex-fuel): +4.0%.
U.S. growth was driven by transaction growth (+2.6%) and average ticket expansion (+2.0%), with digital contributing roughly 520 basis points to comp performance.
Margins
Gross margin rate: Up 13 basis points year over year to 24.0%.
Operating income: $8.7 billion, up 10.8% reported.
Adjusted operating income (cc): +10.5%, growing more than twice the rate of sales.
“We finished the year strong, with a quarter of broad-based share gains, continued e-commerce momentum, and adjusted operating income growing at 10.5% in constant currency, which is over twice the rate of sales growth.” — John David Rainey, Chief Financial Officer
Profitability
GAAP EPS: $0.53 (down 18.5% year over year due to equity investment losses).
Adjusted EPS: $0.74, excluding a net $0.21 loss on equity and other investments.
Full-year GAAP EPS rose to $2.73, while adjusted EPS reached $2.64.
The divergence between GAAP and adjusted results reflects volatility in equity investment valuations rather than underlying operating weakness.
Forward Guidance
For Q1 FY27:
Net sales (constant currency): +3.5% to +4.5%.
Operating income (constant currency): +4.0% to +6.0%.
Adjusted EPS: $0.63–$0.65.
For FY27:
Net sales (constant currency): +3.5% to +4.5%.
Adjusted operating income (constant currency): +6.0% to +8.0%.
Adjusted EPS: $2.75–$2.85.
“The pace of change in retail is accelerating. It’s exciting. And our financial results show that we’re not only embracing this change, we’re leading it.” — John Furner, President and Chief Executive Officer
Risks & Opportunities
Management cited several external variables:
Tariffs and trade policy.
Drug pricing headwinds from Maximum Fair Pricing legislation.
Inflation trends (currently running slightly above 1%).
Consumer wallet pressure in lower-income cohorts.
At the same time, the company expects continued margin expansion from business mix, automation, and digital leverage.
Operational Performance
Execution was the defining theme of the quarter. Inventory increased just 2.6% in constant currency, roughly half the rate of sales growth. This reflects improved supply chain automation and marketplace mix optimization.
“Notably, the combination of advertising income and membership fees represented nearly one-third of our operating income this quarter.” — John David Rainey, Chief Financial Officer
Automation penetration is rising:
~60% of U.S. stores receive freight from automated distribution centers.
~50% of U.S. eCommerce fulfillment volume is automated.
This is translating into labor productivity gains, reduced markdowns, and improved fresh shrink control.
Segment performance snapshot:
Walmart U.S.: Operating income +6.6%.
International: Operating income +36% in Q4 (constant currency adjusted +26.5%).
Sam’s Club U.S.: Stable operating margin with 6.1% membership income growth.
The company is executing ahead of its long-term financial framework, with three consecutive years of operating income growth exceeding sales growth.
Consumer Demand, Pricing, and Category Dynamics
The consumer backdrop remains bifurcated.
Higher-income households (>$100,000 income) drove the majority of share gains. Lower-income customers remain stretched, though convenience continues to matter nearly as much as price.
Grocery inflation remains subdued (just under 1%), while general merchandise showed low-single-digit growth in the U.S., led by fashion — a notable inflection.
Walmart is leaning into Everyday Low Price (EDLP) rollbacks to unlock discretionary purchasing power. This approach appears proactive rather than defensive, reinforcing share gains while sustaining margin expansion via mix.
The takeaway: Walmart is engineering demand through price leadership and convenience, not merely reacting to macro softness.
Strategic Initiatives
Three pillars define the strategic arc:
1. Agentic Commerce & AI Integration
Sparky, Walmart’s AI shopping assistant, is gaining traction. Roughly half of app users have engaged with it, and users generate approximately 35% higher average order value.
Partnerships with OpenAI and Alphabet position Walmart to scale “agentic commerce” globally.
2. High-Margin Profit Streams
Global advertising revenue grew 37% in Q4.
Walmart Connect grew 41% in the U.S.
Membership income rose 15.1% globally.
These streams now materially alter Walmart’s margin profile.
3. Supply Chain Automation
Automation investments are peaking, with capital expenditures guided to approximately 3.5% of sales in FY27. The company expects lower marginal cost growth as global tech platforms scale.
Capital Allocation
Operating cash flow: $41.6 billion (+$5.1 billion).
Free cash flow: $14.9 billion (+$2.3 billion).
Cash balance: $10.7 billion.
Total debt: $51.5 billion.
The board authorized a new $30 billion share repurchase program, the largest in company history.
Dividends were increased to $0.99 per share annually, reinforcing Walmart’s balanced capital return strategy.
The Bottom Line
Margin durability is real. Operating income growth has exceeded sales growth for three consecutive years, supported by structural mix shifts.
Digital scale is now a profit engine. Advertising and membership fees are materially reshaping the P&L.
AI and automation are no longer experimental. They are embedded in fulfillment, discovery, and productivity.
Risks remain — particularly tariff volatility and drug pricing reform — but Walmart is entering FY27 with momentum, financial flexibility, and a clearer structural margin story than at any point in the past decade.
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