The Kroger Co. (KR) | Second Quarter 2026 | September 11, 2026 Hardik Shah Kroger's second quarter showed that the company can absorb a weak sales environment, invest in price and still protect annual profit. It did not yet show that those investments are producing stronger grocery demand. The distinction sets up a clean test for Greg Foran's turnaround: cost savings have created room to act, but unit growth and basket expansion must eventually carry more of the earnings case than share repurchases. The sales headline understates the business but demand still softened Identical sales excluding fuel increased just 0.2%, down from 3.4% a year ago. That figure absorbed 265 basis points of specific headwinds: 140 basis points from Inflation Reduction Act changes to pharmacy reimbursement, 60 basis points from the shift toward lower-priced generic prescriptions, 30 basis points from egg deflation and 35 basis points from the Cyclospora outbreak's effect on produce. Adding those items back mechanically would put growth near 2.9%, but that is not a clean measure of underlying demand. The pharmacy effects reduce reported revenue without reducing profit, while egg deflation changes price rather than units. Cyclospora was a temporary disruption concentrated late in the quarter. Grocery units still decelerated from the first quarter, traffic increased only slightly and ticket declined as customers bought fewer items per trip. Management also reduced full-year identical-sales guidance from 1%-2% to 0.2%-0.8%. The quarter therefore looks healthier than the headline comp and weaker than a simple adjusted comp suggests. Kroger maintained its share advantage over Circana's traditional-grocery benchmark, even with a heavier fresh mix that likely made Cyclospora more damaging. It has not yet converted that relative performance into convincing absolute growth. Profit resilience came from several sources Kroger held full-year adjusted FIFO operating-profit guidance at $5.0-$5.2 billion despite the lower sales outlook. FIFO gross margin excluding fuel, rent, depreciation and amortization increased 13 basis points as e-commerce profitability, retail media, pharmacy mix and sourcing savings outweighed price investment, higher shrink and transportation costs. Adjusted e-commerce sales grew 20%, and Kroger reported a second consecutive quarter of profitable e-commerce growth. Kroger Precision Marketing profit increased 24%, its strongest growth since 2021. The result demonstrates real operating flexibility, although the 5% increase in adjusted EPS overstates the underlying earnings performance. Adjusted net earnings declined 4% to $667 million, and adjusted FIFO operating profit slipped from $1.091 billion to $1.076 billion. Diluted shares fell nearly 9%, from 665 million to 608 million, following $1.2 billion of repurchases in the first half. Buybacks turned a decline in adjusted earnings into per-share growth. Cost savings still did useful work. They funded lower prices while helping protect gross margin, even as the operating expense rate rose 33 basis points because of wage investment, healthcare costs and sales deleverage. Foran said the opportunities in sourcing, procurement, shrink, out-of-stocks and organizational efficiency are larger than he expected when he arrived. That gives Kroger time to rebuild the customer proposition without forcing an abrupt margin reset. Lower prices create an intentional delay in reported sales Kroger's value plan is changing the balance between base shelf prices and promotions by geography. The near-term arithmetic works against reported sales: when the price of an item falls, revenue declines before customers recognize the change and add more items to their baskets. Foran acknowledged that well over half of customers do not understand Kroger's current promotional package. Changing price perception will take longer than changing prices. Early evidence from the markets receiving value investment is encouraging. Those stores moved against the companywide decline in basket size, and Kroger's base shelf-price position improved relative to competitors. Management has not disclosed the investment, price gaps or unit response, so investors cannot yet judge the return. A 13-basis-point gross-margin increase shows that Kroger funded the program; it does not establish that the program is working with customers. Merchandising offers a second route to better baskets. Private Selection sales rose more than 14%, total own-brand penetration gained roughly 50 basis points, and prepared meals, deli and bakery gained unit and dollar share. These categories combine convenience with a price-quality proposition that does not depend on blanket discounting. They also carry an optical cost: customers shifting from national brands to Kroger brands can reduce reported revenue while improving gross profit. Kroger enters the October investor update with the funding side of its plan in better shape than the sales revision implies. The next proof is customer behavior. Unit growth, items per basket and share gains in the geographies receiving price investment will show whether savings are financing a durable retail improvement or merely supporting profit while demand remains soft.

Jersey Mike’s entered the public market with a growth story built on two ambitions: expand a 3,378-store system toward 7,500 U.S. locations and lift average unit volume from roughly $1.4 million to $2 million. Its second-quarter results gave the first credible evidence that the company can raise sales at existing restaurants without relying heavily on price. The unanswered part is whether digitally acquired customers and limited-time offers can produce lasting frequency rather than a series of well-marketed visits. The comp improvement came from transactions Same-store sales increased 2.3%, up from 1.7% in the first quarter, and management said the growth was predominantly transaction-driven. Pricing contributed roughly one percentage point or less and should remain around that level in the back half. With several hundred basis points of prior-year pricing rolling off, current third-quarter same-store sales above 3% indicate that traffic momentum has continued. The 10% increase in systemwide sales therefore had support from both 8.1% net unit growth and positive transactions at mature stores. Cannibalization has remained below 100 basis points despite the pace of openings, according to Chief Financial Officer Michele Allen. Adjusted EBITDA increased only 7% to $114 million, but advertising-fund timing created a $10 million year-over-year headwind. Excluding it, management calculated 18% growth, including an $8 million benefit from replacing the legacy Area Director model with internal support. Part of this year’s margin expansion is therefore a one-time cost reset rather than a recurring operating gain. Jersey Mike’s is building a customer-acquisition capability The brand already has roughly 90% awareness, so broad exposure alone will not close the AUV gap. Management is targeting customers who know Jersey Mike’s but visit infrequently, particularly younger and Hispanic consumers. Digital marketing represented less than 1% of media spend before this year. It now exceeds 20%. Loyalty registrations increased 22% year to date, digital sales rose 200 basis points to 43% of system sales, and ad awareness among Hispanic consumers increased 6%. Chicken Salad and Mike’s Hot Italian attracted new or less-frequent guests as same-store sales accelerated. Management plans only two or three limited-time offers annually. Mike’s Hot Italian sells for $8.95 with food cost below 20%, versus roughly 27% across the system. Jersey Mike’s can advertise an accessible price point while protecting franchisee economics, using existing proteins and the flat grill to limit added complexity. Registration is only the beginning of the frequency test Chief Executive Officer Charlie Morrison acknowledged that it is too early to know whether guests acquired through the recent promotions are returning consistently. Jersey Mike’s has 12 million to 13 million loyalty registrations, but only about 7 million active users. Those members visit roughly once a month, and management believes the database can eventually reach 30 million to 50 million users. Today, only about 54% to 58% of registered users are active. Delivery accounts for just under 20% of sales, yet only about 3% of total sales comes through Jersey Mike’s own channel. Management sees first-party delivery reaching 10%. Moving orders onto its app or website would preserve customer data, bring more guests into loyalty and support individualized marketing. Digital orders also carry a higher average check. The economic value will come from converting those customers into repeat users rather than shifting existing orders from a third-party platform. The path to $2 million AUV needs several levers to compound Current AUV of $1.376 million must rise about 45% to reach $2 million. At a 2.5% to 3% annual same-store sales rate, that would take roughly 13 to 15 years. A faster path requires several sources of transaction growth to work together: a larger active loyalty base, higher first-party digital penetration, catering and broader day-part usage. Morrison said stores already above $2 million are not concentrated in unusually attractive locations or demographics. Their franchisees tend to engage their communities more actively and generate more catering. Catering represents about 3% of system sales but can reach 10% in suitable trade areas. Nearly every store also has a second make line for digital orders, providing capacity to add off-premise volume without crowding the front counter. The next proof should come from cohort behavior: how many digitally acquired customers become active loyalty members, how often they return after the promoted product disappears, and whether first-party ordering expands alongside frequency. Those measures will reveal whether the recent traffic gains can move a $1.376 million store toward $2 million.

Casey’s first-quarter earnings benefited heavily from unusually high fuel margins, lower cheese costs and an accounting reallocation. Beneath those effects, one operating result offers a more durable reason for optimism: prepared-food units increased nearly 4% while same-store labor hours remained approximately flat. The quarter provides early evidence that Casey’s can move more food through its existing stores without adding labor at the same rate. The durability of that relationship will have greater bearing on long-term earnings than the 28% increase in reported earnings per share. Fuel Profit Inflated the Headline Results Casey’s generated $485 million in EBITDA, up 17% from the prior year. More than half of the company’s $127 million gross-profit increase came from fuel, where gross profit rose $73.4 million. Fuel margin reached 47.8 cents per gallon, 6.8 cents above the prior year and well above historical levels. Volatility in petroleum markets created unusually favorable pricing conditions during the quarter. By August, fuel margin had already moved back into the low-40-cent range. The company executed well within that environment. Same-store gallons declined only 0.3%, including an estimated 50-basis-point drag from CEFCO remodeling, while fuel volumes across Casey’s Mid-Continent markets fell approximately 6%, according to OPIS data cited by management. Casey’s appears to have taken market share without sacrificing the margin opportunity. (Casey’s is converting the roughly 200 CEFCO texas-based convenience stores it acquired through Fikes Wholesale to the Casey’s brand and prepared-food model.) That performance contributed real profit, but 47.8 cents per gallon is a poor starting point for estimating normalized earnings growth. Fuel margins can move sharply in either direction and are partly determined by market volatility outside the company’s control. Prepared-food margin also requires normalization. The reported margin increased 130 basis points to 59.3%, but lower cheese prices contributed approximately 45 basis points and an internal distribution-cost reallocation accounted for the remainder. Chief Financial Officer Steve Bramlage said the two factors explained the entire year-over-year increase. Prepared-Food Growth Came From Customer Demand Prepared food and dispensed beverage same-store sales increased 4.8%, with most of the growth coming from traffic and minimal pricing. Transactions rose by more than 1%, units increased nearly 4%, and whole-pizza units grew nearly double digits. Casey’s is generating additional food occasions while increasing the number of units sold faster than transactions. That is a stronger demand signal than a comparable-sales increase produced primarily through pricing. Value appears to be supporting the result. Casey’s has taken limited price in prepared food while national pizza chains have raised theirs. Management estimates that a single-topping pizza at Casey’s is now approximately $3 cheaper than the comparable national-brand product. About half of Casey’s stores have no nearby national pizza competitor. That positioning is useful in the current consumer environment. Management observed slightly weaker growth among lower-income customers, while grocery categories such as beer, cigarettes and national-brand snacks remained soft. Prepared food continued to gain traffic because Casey’s can offer a full meal at a price that has become more competitive relative to quick-service restaurants. Stores Absorbed Higher Volume Without Additional Hours Casey’s served the additional prepared-food demand with same-store labor hours approximately flat. Wage increases still raised same-store employee expense, but the company did not need a comparable increase in hours to produce nearly 4% unit growth. Prepared food carries a gross margin close to 60%, versus roughly 36% for grocery and general merchandise. Incremental food volume can therefore contribute attractive gross profit when it moves through existing store capacity. Flat labor hours indicate that the current increase in demand was absorbed through higher throughput rather than additional staffing. This is still an early proof point. Total operating expenses increased 8%, including contributions from wage rates, credit-card fees, insurance, repairs and utilities. Management expects second-quarter expense growth to remain near the first-quarter rate, partly because higher retail fuel prices increase card fees. Casey’s long-term plan assumes operating expenses will grow more slowly than EBITDA. The prepared-food unit-to-labor-hour relationship shows how that could happen at the store level, although a single quarter cannot establish the persistence or capacity limits of the improvement. CEFCO Is Extending the Test Beyond Casey’s Core Markets The CEFCO conversions indicate that Casey’s food program may travel beyond its established Midwestern store base. Remodeled locations have produced an average prepared-food and dispensed-beverage sales lift of approximately 30% from their pre-remodel levels. CEFCO already had the strongest prepared-food operation Casey’s had encountered in an acquisition. Generating a 30% lift from that starting point provides a more demanding test than improving stores with little existing food volume. Converted stores that have carried the full Casey’s assortment for more than a year are also continuing to report positive comparable growth. The conversions currently suppress companywide results because affected stores can experience four to six weeks of construction disruption. Remodeling reduced inside same-store sales by approximately 25 basis points and fuel gallons by about 50 basis points during the first quarter. Management expects the disruption to continue through the next two quarters, with the converted-store benefit becoming more visible around the fourth quarter. The next proof will come from three numbers viewed together: prepared-food unit growth, same-store labor hours and the post-remodel performance of CEFCO stores. Sustained unit growth with limited additional labor—and a fourth-quarter lift as converted stores re-enter normal operation—would show that Casey’s is building earnings through repeatable store-level execution rather than relying on favorable fuel and commodity conditions.

Campbell’s Snacks volume decline is doing disproportionate damage to profit. In fiscal Q2, sales fell 6% and segment margin contracted 390 basis points; management attributed roughly three-quarters of that margin decline to deleverage across the plant network and continued spending elsewhere. By Q4, Snacks organic sales were still down 6% and operating earnings had fallen 34%. That points to a problem deeper than soft consumer demand. Campbell built portions of its manufacturing network for a level of snack volume that did not materialize, while manufacturing and distribution execution problems have added another source of inefficiency. Fiscal 2027 is becoming an attempt to resize that cost base without damaging the service levels needed if demand eventually returns. Capacity Was Added for a Demand Curve That Did Not Arrive The clearest admission came earlier this year. Campbell had invested roughly $160 million in its Richmond manufacturing facility to expand Goldfish capacity. Asked about utilization after subsequent volume declines, President and CEO Mick Beekhuizen acknowledged that Campbell had invested in Goldfish and other areas coming out of the pandemic because it expected volumes to continue growing. “It obviously has not,” he said. Higher fixed costs against declining volume were contributing to the margin pressure, and management explicitly tied improvement in the P&L to recovering Goldfish volume. The economic mechanism is straightforward. A plant network designed for higher throughput cannot shed fixed cost at the same rate that cases disappear. Lower production therefore raises the fixed-cost burden per unit, making a relatively modest sales decline capable of producing a much larger earnings decline. Campbell’s current actions suggest management no longer expects demand recovery alone to solve that equation. Execution Compounded the Utilization Problem Fresh bakery exposed a different weakness. Campbell disclosed manufacturing and distribution disruptions during fiscal Q2 that reduced product availability on shelf. The problems had begun before January winter storms exacerbated them. Management deployed a cross-functional team and invested in changes intended to make the improvement sustainable. Campbell even reduced some promotional activity while it restored on-shelf availability and service levels. That is an unusual operating trade-off: generating additional demand has little value when the network cannot reliably convert it into product on the shelf. By Q4, bakery had improved sequentially, but management’s description of the broader Snacks recovery remained heavily operational. Beekhuizen said the company needs clearer alignment between demand and manufacturing, the right product coming out of the plants, and better direct-store-delivery execution to get inventory into stores and onto shelves. Campbell does not disclose enough detail on forecasting accuracy, plant utilization, service levels or on-shelf availability to separate these effects quantitatively. The evidence does show two distinct sources of pressure: insufficient volume to absorb existing capacity and execution failures that can prevent available demand from becoming shipments and sales. Campbell Is Now Resizing the Network The $500 million cost-savings program through fiscal 2030 is better understood in that context. Of the total, $150 million was already embedded in the previous savings program, leaving $350 million of newly identified savings. A major new initiative covers direct and indirect procurement, while headcount reductions and further supply-chain network optimization broaden the effort beyond purchasing. The physical footprint is already changing. CFO Todd Cunfer said Campbell has closed two chip plants and is putting capital into remaining facilities to improve efficiency. Broader network optimization will take longer, while procurement savings should contribute sooner. That creates a harder problem than simply cutting costs. If snack demand recovers materially, removing too much capacity could eventually constrain service or require fresh investment. Goldfish and Snyder’s are also Campbell’s two most profitable snack brands, making their eventual stabilization unusually important to plant economics. Management therefore has to distinguish genuinely excess infrastructure from capacity that merely looks excessive during a cyclical or reversible volume trough. Fiscal 2027 should provide an early answer. Campbell expects snack volume declines to moderate through the year but does not assume consumption turns positive. If Snacks margins improve in the second half while on-shelf execution continues to normalize despite still-negative volume, Campbell will be demonstrating that its network can operate economically at a lower throughput level. If meaningful margin recovery still requires volume to return first, much of the supply-chain problem will remain unresolved.

Campbell’s fourth-quarter headline numbers look worse than the underlying quarter because fiscal 2025 had an extra week. Reported sales fell 8%, but organic sales declined only 1%. The more consequential deterioration was below the top line: adjusted gross margin fell 190 basis points to 28.6%, adjusted EBIT declined 25% to $242 million, and adjusted EPS fell 37% to $0.39. Cost inflation and supply-chain expenses, including tariffs, overwhelmed productivity gains. The fiscal 2027 plan suggests Campbell is no longer trying to defend volume at almost any economic cost. Management is preparing to accept additional unit declines, use pricing and cost reduction to rebuild the P&L, and fund the consumer and brand investments it believes are necessary for growth later. The immediate question is therefore whether Campbell can repair margins while demand is still falling. Meals & Beverages Provides a Base; Snacks Does Not The portfolio entered fiscal 2027 with sharply different demand profiles. Meals & Beverages grew organic sales 3% in Q4, although roughly two points came from lapping the prior-year Sovos SAP implementation. Snacks organic sales fell 6%, entirely from volume/mix despite 1% price realization, while segment operating earnings declined 34%. Meals & Beverages also has a consumer behavior working in its favor. More than half of its retail sales are exposed to cooking, an area management says has grown roughly 5% annually over the past four years. Cooking products account for about half of Campbell’s soup portfolio, and the company is leaning into the “semi-scratch” occasion: meals prepared in less than 30 minutes with fewer than five ingredients. Rao’s, broth and condensed cooking products all fit that behavior. Snacks has no comparable demand tailwind today. Management expects Q1 snack sales to decline in the high single digits and does not assume snack consumption reaches positive territory at any point during fiscal 2027. The plan calls only for progressively smaller declines. That changes how fiscal 2027 should be judged. A flat snack-volume quarter would actually represent substantial upside to the operating plan. Campbell Is Explicitly Trading Volume for Profit The clearest evidence of the change in posture is pricing. Campbell has communicated price increases averaging 4%–5% across roughly 60% of its portfolio. CFO Todd Cunfer said management is assuming approximately 1.5x elasticity and acknowledged that the action will have a “negative impact on net sales” while benefiting the bottom line. Taken mechanically, those assumptions are revealing. A 4% price increase combined with 1.5x elasticity implies roughly a 6% unit decline on the affected business; at 5%, the implied decline is about 7.5%. After incorporating the higher selling price, revenue on the affected products would still fall roughly 2.2%–2.9%. Applied to 60% of Campbell’s portfolio, that equates to approximately 1.3–1.7 percentage points of company sales pressure before considering mix, category differences or competitor pricing. Management has deliberately built that trade-off into guidance. Fiscal 2027 organic sales are expected to decline 2%–4%, while adjusted EPS falls 17%–24% to $1.65–$1.80. The elasticity assumption is also conservative in one respect: Campbell largely assumes competitors do not follow its increases. If competitors eventually raise prices as well, management believes realized elasticity could be better. This is a profit-protection strategy being executed before the demand problem is solved. Cost Savings Have to Bridge the Gap Pricing alone cannot carry the reset because Campbell still expects 5%–6% inflation and double-digit logistics inflation. Gross margin is expected to deteriorate sharply in Q1, improve in Q2 and turn positive year over year during the second half. EPS follows a similar trajectory, with management expecting year-over-year growth only by Q4. That makes the new $500 million cost program central to the earnings bridge. The headline figure somewhat overstates the incremental opportunity: $150 million represents remaining savings already embedded in Campbell’s previous program, leaving $350 million of newly identified savings through fiscal 2030. Headcount actions and a new direct-and-indirect procurement program should contribute sooner; supply-chain network optimization takes longer. Snacks is where the operating leverage becomes most consequential. Goldfish and Snyder’s are Campbell’s two most profitable snack brands. Management believes stabilizing them, combined with pricing, procurement savings, plant productivity and recent chip-plant closures, can materially restore profitability even before the overall segment returns to volume growth. The fiscal 2027 proof point is therefore unusually clean. Campbell does not need Snacks consumption to grow for the plan to work; management has already told investors it probably will not. By the second half, volume declines need to be moderating while snack margins begin recovering as pricing and procurement savings arrive. If that relationship appears, Campbell will have bought itself time to rebuild the brands. If margins remain weak despite the planned pricing and cost actions, the business will enter the next stage of the turnaround without either volume growth or sufficient operating leverage to compensate.

Ollie’s Bargain Outlet’s 43% EPS growth is the least useful number from the second quarter. Adjusted EPS reached $1.42 and adjusted EBITDA margin expanded 330 basis points to 17.1%, but the quarter included a 380-basis-point gross-margin benefit from IEEPA tariff refunds. Management also used part of that windfall to cut prices. Excluding both the refund and roughly 70 basis points of related price investment, CFO Robert Helm said gross margin would have been approximately 40.3%–40.4%, still modestly ahead of the company’s 39.9% expectation. That normalization changes the interpretation. The tariff refund manufactured most of the headline earnings acceleration, but underneath it Ollie’s still produced some genuine operating improvement from lower shrink and supply-chain efficiencies, including benefits from its Princeton distribution center operating at scale. The more consequential development is what Ollie’s is doing with the windfall: spending some of it to defend its price gap while the consumer weakens and competitors become unusually promotional. The Sales Reset Is Real Net sales rose 9.1% to $741 million, supported by new stores, while comparable-store sales declined 1.8%. Transactions were flat and average basket declined. Ollie’s responded by cutting its full-year comp outlook from roughly 2% to 0%–0.5% and reducing expected sales from $2.98–$3.00 billion to $2.928–$2.941 billion.There is evidence that the headline comp understates the underlying demand trend. Lawn and garden and room air alone reduced the comp by slightly more than 100 basis points, and management believes the total effect was larger because those categories normally generate additional purchases elsewhere in the store. Transactions improved sequentially every month and finished the quarter positive, while basket ended flat. Consumables continued growing at a mid-single-digit rate, and August was running ahead of the company’s flat third-quarter comp plan when results were reported.But weather does not explain everything. Lower-income customers are shopping less frequently and increasingly prioritizing needs over discretionary purchases. Management places that pressure primarily among households earning below roughly $65,000. Higher-income households above approximately $100,000 continue to trade down into Ollie’s, while elevated fuel prices are particularly affecting customers with longer drives to stores in parts of Texas and the Midwest.Ollie’s therefore has two opposing consumer forces operating simultaneously: trade-down is expanding the potential customer base, but financial pressure on its core value shopper is reducing frequency and discretionary basket. The Tariff Refund Became a Pricing Budget Ollie’s received $28.3 million of tariff refunds during the quarter. Rather than allowing the entire benefit to flow through earnings, management has already begun recycling some of it into sharper prices and now expects roughly 50 basis points of full-year price investment associated with the refund. CEO Eric van der Valk described Ollie’s positioning as everyday low price rather than high-low promotion. Yet the company lengthened promotional events, discounted weather-sensitive inventory, sharpened prices on traffic-driving products and even tested a “Five for the Drive” offer aimed at customers living farther from stores. Ollie’s expects approximately $50 million of price investment during the year and says it will spend beyond that if necessary to maintain its price leadership.This creates an unusual economic loop for an off-price retailer. Competitors receiving their own tariff benefits and clearing weather-sensitive merchandise created more promotional pressure during Q2. That hurt Ollie’s current-period sales and forced it to respond on price. But those same inventory imbalances and aggressive clearance decisions are also creating future closeout merchandise for Ollie’s buyers. Management explicitly rejected merchandise availability as an explanation for the weak comp. Deal flow remains strong, with particularly heavy availability in summer seasonal merchandise. The competitive disruption hurting Ollie’s today may therefore improve its purchasing environment later. Store Growth Still Works, but It Cannot Hide the Comp Forever Ollie’s opened 15 stores during Q2 and 42 during the first half, bringing the chain to 686 locations. The company continues to target 75 openings this year, and management said most of its 2027 real-estate pipeline is already secured.The acquired Big Lots locations also appear to be settling into the model reasonably well. Ollie’s normally expects stores entering their second year to experience a mid- to high-single-digit negative comp as grand-opening volumes normalize. The former Big Lots locations are running closer to low- to mid-single-digit declines, which management attributes partly to their softer opening strategy. Meanwhile, Ollie’s Army membership increased roughly 13% to more than 18 million, new-customer acquisition increased, and management is seeing particular progress attracting customers aged 35–45 through more sophisticated digital marketing.That gives Ollie’s considerable room to keep growing even with muted same-store sales. It also raises the standard for interpreting that growth. Negative comps caused SG&A to deleverage by 80 basis points this quarter, demonstrating that store openings cannot indefinitely substitute for productivity within the existing fleet. The next proof point is therefore not EPS. Ollie’s is planning approximately flat comps in Q3 and 1% growth in Q4 while maintaining its long-term gross-margin framework near 40.5%. The tariff refunds temporarily make the trade-off between price and profit easier. Management itself describes those dollars as finite. If transactions and basket recover as that subsidy disappears, Ollie’s will have demonstrated that the current price investment protected customer economics rather than simply purchasing short-term demand. If comps remain around zero once the tariff windfall is gone, store growth can still expand revenue, but the quality of that growth will look considerably different.

The Cheesecake Factory grew comparable sales 5.8% in fiscal Q2 2026, with 2.7% traffic, 3.0% pricing and essentially flat mix. Restaurant-level margin reached 20%, its highest level in a decade, while annualized unit volumes moved above $13.5 million. Those results came from a restaurant model built around more than 225 menu items, much of it prepared from scratch, with roughly one-fifth of sales occurring off-premise. Cheesecake Factory has resisted the simplification that has become common across casual dining. Instead, it has kept the menu broad and invested in the people, ordering systems and marketing capabilities required to make that breadth productive. The app launch added fuel to traffic that was already improving Cheesecake Rewards had been operating for roughly three years when the company launched its mobile app. The rollout included a complimentary cheesecake offer and generated unusually strong downloads. Management said the app reached the top three in Apple’s download rankings for a day. The timing helps separate some of the promotional lift from the broader traffic improvement. Weather-adjusted comparable sales were already running around 2.5% to 3% in Q1. The free-slice offer ended in early May, but sales accelerated modestly in the second half of Q2 and exited the quarter above the average pace. Management incorporated that stronger exit rate into its Q3 assumptions. The app combines reservations, online ordering and reward redemption. Cheesecake Factory reported higher activation and reservations after launch, continued acquisition of new Rewards members and a significant percentage of downloads from customers who had not previously joined the program. The company does not disclose active users, transaction penetration or visit frequency by cohort. Management also said Rewards, delivery, menu changes and marketing were contributing on roughly equal footing to the recent sales improvement. The app helped, but the disclosed numbers do not support assigning the traffic inflection primarily to the launch. Social media is making old menu items relevant again Several Cheesecake Factory products receiving attention on social media have been on the menu for more than 20 years. Management said social mentions have been running roughly two to three times the casual-dining average per restaurant and that some of the viral menu “hacks” are generating traffic the company can measure. That provides another return on menu breadth. A restaurant carrying more than 225 items has far more products available to be rediscovered when consumer tastes or social-media conversations shift. Cheesecake Factory has also changed how it presents portions of the menu. Bites and Bowls were placed on a separate menu rather than left inside the full assortment. Lower-priced Bowls brought effective pricing below 2%, despite reported pricing of 3.0%, while higher Bites incidence offset the difference roughly one-for-one. Management has also observed higher visit frequency among customers ordering Bowls. The company is getting incremental demand from products it has already developed, kitchens already know how to prepare and customers may simply have overlooked. Long-tenured operators make the menu possible A menu that large creates little advantage if restaurants cannot execute it consistently. The average Cheesecake Factory general manager has been with the company for 17 years. Executive kitchen managers average 16 years, area directors of operations 25 years and regional vice presidents 29 years. Q2 provided unusually strong evidence of what that operating experience can produce. Cheesecake Factory segment revenue increased by $46.2 million year over year while operating income increased by $21.5 million, producing a 46.4% incremental operating margin. Even after adjusting for lower pre-opening and impairment expense, incremental flow-through was approximately 41.6%. Labor expense declined from 33.84% to 32.54% of segment sales, an improvement of roughly 130 basis points, while traffic rose 2.7%. That combination helps explain why management continues to reject menu simplification. President David Gordon said the company has “never made the menu smaller” and “would never narrow that.” For Cheesecake Factory, the menu depends on years of accumulated operating experience. Without that experience, the same breadth would be more likely to show up as slower kitchens, higher labor requirements and inconsistent execution. Off-premise shows what the operating system can handle Roughly 21% of Cheesecake Factory sales occur off-premise, equivalent to about $2.8 million per restaurant annually. The company’s investor presentation shows average weekly off-premise sales of approximately $50,000, substantially above the casual-dining peers included in its comparison. Those orders move through online, delivery, phone and in-person channels. Cheesecake Factory has added curbside pickup, geolocation, real-time tracking, redesigned packaging and a separate bakery counter for pickup orders. Competitors can build loyalty apps and add social-listening capabilities. They can also copy individual menu tactics. Reproducing the operating foundation underneath them is a different undertaking: 17-year general managers, 16-year kitchen leaders, a 225-plus-item scratch menu, more than $13.5 million in annualized restaurant sales and roughly $2.8 million of off-premise sales per unit. The environment provided some help. Management described consumer conditions as somewhat better than expected and said younger guests returning to malls were benefiting the brand. Cheesecake Factory traffic still outperformed the Black Box Casual Dining Index by 350 basis points, and management said the strength was broad across regions. Cheesecake Factory has not disclosed whether app and Rewards customers ultimately visit materially more often than comparable non-members. Continued traffic outperformance after the launch cohort matures, alongside sustained off-premise volumes and restaurant margins, would provide the clearest evidence that the advantage sits in the system underneath the recent marketing wins.

USDA’s Harvest to Hallways initiative puts up to $70 million toward school cafeteria infrastructure, up to $25 million toward new Farm to School grants, and $30 million toward research on improving school meals. The funding is modest relative to the national food system. Its effect could reach further because each component addresses a different constraint on what schools can buy and serve. The initiative follows the administration’s publication of the 2025–2030 Dietary Guidelines for Americans, which shifted federal nutrition guidance toward whole, nutrient-dense foods, higher-quality protein, whole grains and fruit, with less added sugar and reliance on highly processed foods. [Alphasumer examined the implications of those guidelines when they were released.] Harvest to Hallways is the next step: moving from nutritional guidance toward implementation inside one of the federal government’s largest institutional food systems. USDA is encouraging more local procurement, financing cold storage and cooking equipment, and promoting nutrition practices aligned with those guidelines. Federal officials are also developing new school-meal standards around the same principles. For food companies, distributors and institutional suppliers, the relevant change is in the specification. Different meals require different supply chains. Fresh Food Requires Different Infrastructure School food has long been shaped by limited labor, tight budgets, food-safety requirements and kitchens that often lack the equipment for meaningful scratch cooking. Harvest to Hallways addresses those constraints directly. Of the infrastructure funding, $50 million is a new investment for equipment including cold storage and stoves, on top of $20 million in previously announced National School Lunch Program Equipment Assistance Grants. USDA is also encouraging public-private partnerships to supplement that investment. More refrigeration expands the range of fresh products a district can hold. Cooking equipment makes minimally processed ingredients more usable. But the harder problem begins after the equipment arrives. Fresh products carry shorter shelf lives and more variable availability than standardized frozen or shelf-stable products. Scratch preparation requires labor and planning. Local sourcing can increase the number of suppliers a district must manage. The policy asks schools to improve nutrition while accepting more operating complexity. Companies that can absorb that complexity may capture more value than those whose only advantage is selling a healthier product. Local Procurement Complicates the Distributor Question USDA is putting particular emphasis on its existing Local Option School Procurement Program, which can allow schools to receive reimbursement for locally produced food. Union County, Kentucky, has used the pathway to buy locally produced beef. USDA also cites the Pennsylvania Beef Council’s work with 175 schools serving nearly 300,000 students. For farmers and regional processors, that creates another route into institutional demand. The implication for large distributors is less straightforward. More direct local purchasing can bypass parts of a centralized distribution network. Yet fragmented sourcing makes logistics harder. Districts still need predictable deliveries, food-safety compliance, product traceability and sufficient volume. For Sysco, US Foods and Performance Food Group, those forces pull in opposite directions. Local sourcing could reduce product flowing through traditional channels in some districts. It could also increase the value of distributors capable of aggregating regional suppliers and giving schools a reliable interface. Which effect dominates will depend on how districts implement local procurement and who assumes the added coordination burden. Protein May Be the Tightest Economic Constraint Federal officials have also signaled greater emphasis on high-quality protein in school meals. That preference runs into the basic constraint of institutional foodservice: cost. Beef fits USDA’s effort to create more domestic demand for farmers and ranchers, but broad adoption becomes harder when cattle supplies are constrained and school budgets are fixed. Poultry, eggs and dairy may offer more economical ways to raise protein content. That makes the policy relevant across the protein complex. Tyson Foods has already committed $1 million over two years to childhood food access and nutrition initiatives connected to the effort. The contribution is immaterial to Tyson financially; its participation is more useful as evidence that major suppliers are positioning around the changing procurement environment. Packaged-food manufacturers face a related challenge. Schools are unlikely to abandon convenience because labor, preparation time and food-safety requirements remain binding constraints. The opportunity shifts toward products that preserve convenience while meeting tighter standards for sugar, processing and nutritional content. Procurement Will Show Whether the Policy Has Teeth Harvest to Hallways combines nutrition standards, procurement policy, kitchen infrastructure, local agricultural demand and research into affordability. USDA is explicitly funding research to identify practical, cost-effective ways to improve school meals, which leaves the implementation economics unresolved. Better equipment and stronger standards do not establish that districts can consistently buy, prepare and serve more fresh food within existing budgets. The earliest evidence should appear in procurement. Adoption of the Local Option program, Farm to School grant recipients, school-district RFPs and supplier reformulations will show whether purchasing behavior is actually changing. If those begin to move, Harvest to Hallways will have progressed from a set of grants into a meaningful change in the economics of institutional food.

Dollar General generated $11.3 billion of net sales in the quarter ended July 31, with comparable sales up 3.5%. Dollar Tree generated $4.9 billion in the quarter ended August 1, with comps up 3.7%. The growth rates are almost identical. The composition is not: Dollar General’s comp included 2.0% traffic growth and 1.5% growth in average transaction, while Dollar Tree’s included 0.4% traffic growth and a 3.3% increase in ticket. Dollar Tree is expanding beyond its historical fixed-price identity while Dollar General is strengthening the lowest end of its price architecture. Both are also gaining customers beyond the income cohorts traditionally associated with the banners. The evidence suggests the two formats are competing for an increasingly similar shopping occasion: a consumer seeking low absolute outlay, credible value and enough assortment to make the trip worthwhile. Their Price Architectures Are Moving Toward Each Other Dollar Tree’s multi-price assortment reached 17% of sales, up roughly 400 basis points from a year earlier. Multi-price gives it room to add brands, categories and choice while retaining opening price points. The company is still willing to sell $1 merchandise when the economics work, but the constraint that once defined the banner is becoming less important to what can sit on the shelf. Dollar General is moving in the opposite direction within a broader price architecture. It carries more than 2,000 items at or below $1. Value Valley has expanded to more than 600 rotating $1 items and produced comp growth above 16% in the quarter. Dollar General also plans to increase the number of $1 SKUs in its second-half seasonal sets by 40%. Dollar Tree is creating more room above its traditional opening price. Dollar General is adding more depth at the opening price. Each is reducing a limitation that once made the two propositions easier to distinguish. Both Customer Bases Are Broadening Dollar Tree grew sales across all income cohorts, with household gains skewed toward middle- and higher-income customers. At Dollar General, trade-in from middle and upper-middle-income households — described by management as the $100,000-plus cohort — has become more frequent and extended from everyday goods into non-consumables. Lower-income customers remain central to both businesses. Dollar General’s core customer is visiting more often while buying less on each trip as inflation and fuel costs strain weekly budgets. Dollar Tree similarly reported lower-income shoppers using opening price points and smaller pack sizes to manage household spending. A $1 item can solve an immediate cash-outlay problem for a constrained household and still represent attractive value to a higher-income household trading down. As assortment broadens, income becomes a weaker predictor of who shops the format. Better Stores Are Supporting the Broader Appeal Price architecture alone does not explain the improvement. Dollar Tree has reduced the share of stores falling below its internal operating standards from roughly half of the fleet last October to about one-third. It cited improvements in in-stock levels, shopability, store recovery and planning; favorable shrink also supported profitability. Dollar General is pursuing a similar operating repair through its back-to-basics work and remodel program. Through Q2 it had completed 1,324 Project Renovate remodels and 1,422 Project Elevate remodels. The programs change coolers, layouts, adjacencies, merchandising and physical assets; management targets annualized comp lifts of roughly 6% for Renovate and 3% for Elevate. Lower inventory per store is also helping employees move product to shelves faster. Sharper price points have limited value when merchandise is unavailable or stores are difficult to shop. Better execution makes the broader assortment more usable. Traffic Will Show How Far the Convergence Goes The businesses remain distinct. Dollar General’s rural density and consumables orientation make proximity a larger part of its proposition. Dollar Tree still depends more heavily on discretionary discovery and multi-price expansion. The current overlap could also partly reflect a stressed consumer pushing higher-income households toward value retailers; some trade-down could reverse if household budgets improve. Traffic provides a cleaner test. Dollar General already generated most of its Q2 comp growth from traffic. Dollar Tree’s first-half growth was much more ticket-dependent, but management expects traffic to become the larger contributor in the second half as it laps prior pricing actions. If Dollar Tree’s traffic contribution rises while multi-price penetration continues to expand, and Dollar General sustains higher-income gains while deepening its $1 assortment, the historical line between the formats will have weakened further. If Dollar Tree remains primarily ticket-driven or the higher-income trade-in recedes, similar comp growth will still be describing two materially different retail models.

Hormel Foods produced an unusual combination in its fiscal third quarter: organic net sales declined 2%, yet adjusted operating margin expanded 60 basis points to 9.0% and adjusted earnings per share rose 6% to $0.37. Management raised the bottom end of its full-year adjusted EPS outlook to $1.45 from $1.43, while cutting the sales range to $12.1–$12.2 billion from $12.2–$12.5 billion. The divergence says something useful about Hormel’s turnaround. Portfolio simplification, cost discipline and improving commodity conditions are allowing earnings to recover before the company has restored consistent volume growth. Q3 also exposed the limit of that path: Hormel still needs more branded retail volume moving through its manufacturing network to convert those improvements into stronger incremental margins. The 9% Retail Volume Decline Overstates the Demand Problem Retail volume fell 9% and organic sales declined 3%, while segment profit fell 4%. Those numbers appear inconsistent with a business whose management has spent much of the year describing improving consumer momentum. John Ghingo, president and CEO-elect, said roughly half of the retail volume decline came from whole-bird turkey, private-label snack nuts, other exited businesses and contract manufacturing. Hormel has deliberately been removing businesses that do not fit its push toward branded, higher-value protein. Another portion reflected the expected elasticity from two rounds of retail pricing. What remains is genuine softness: total Hormel dollar consumption slipped about 1% during the quarter after running approximately 1% higher earlier in the year. The branded portfolio was considerably healthier than the segment headline. Jennie-O Ground Turkey and Hormel Square Table entrees generated mid-to-high-single-digit consumption growth, while Applegate, Hormel Black Label Bacon, Planters and several center-store brands also grew. Hormel therefore has two things happening simultaneously: it is intentionally removing lower-priority volume while still dealing with some demand pressure in the businesses it intends to keep. The latter determines how quickly the turnaround progresses from portfolio cleanup into sustainable organic growth. Foodservice Is Already Showing What the Portfolio Can Become Foodservice provides a cleaner read on the model Hormel is trying to build. Organic sales increased 2% despite lower commodity-based pricing, marking a 12th consecutive quarter of organic growth. Segment profit rose 3%, with premium prepared proteins, branded pepperoni and Jennie-O turkey among the largest contributors. That performance has persisted despite sluggish restaurant and away-from-home traffic. Hormel’s direct sales organization works with operators around menu development, labor efficiency and differentiated protein offerings, creating a business that competes increasingly through value-added solutions rather than commodity exposure. Management had already identified branded retail and Foodservice as its two primary portfolio priorities earlier this summer. Q3 strengthens the case for that strategy because Foodservice generated sales and profit growth while commodity deflation was actually suppressing reported revenue. Volume Is Now the Constraint on Margin Expansion Hormel’s adjusted operating margin reached 9.0%, up from 8.4% a year ago. Adjusted Selling, General and Administrative expenses (SG&A) fell to 7.3% of sales from 8.1%, helped by lower employee-related costs and the timing of marketing spending. Lower pork costs also began flowing through the income statement late in the quarter, with management expecting more of that benefit in coming quarters and into fiscal 2027.Yet management actually reduced its implied fourth-quarter earnings expectation. Interim CEO Jeff Ettinger said the company had been thinking about roughly $0.40 of Q4 EPS after the second quarter; the updated midpoint is closer to $0.37. His explanation gets directly to the operating constraint: “we lose out on both the sales margin contribution and on the plant throughputs associated with better volumes.” Lower input costs become less valuable when fewer pounds are moving through the manufacturing system. Q3 also included inventory-rebalancing actions that reduced production volumes, along with weather-related disruptions and weaker turkey feed conversion. Most of the inventory actions occurred during the quarter, while finished-goods inventory ended roughly flat sequentially and materially below last year. That leaves Hormel approaching fiscal 2027 with several potential margin tailwinds already in place: lower pork costs, a leaner portfolio, supply-chain improvements and tighter overhead spending. The remaining variable is volume. If growth across Jennie-O, Applegate, Planters, Black Label and the rest of the priority portfolio can offset the businesses Hormel is exiting and restore manufacturing throughput, the current earnings recovery has room to broaden. If retail consumption remains around flat to down, some of the commodity and productivity benefits will continue to be absorbed by underutilized capacity. Hormel has begun proving that it can produce more earnings from a cleaner portfolio. Fiscal 2027 will test whether it can put enough volume through that portfolio to make the margin recovery durable.

J.M. Smucker’s fiscal first-quarter numbers look extraordinary at first glance. Net sales increased 5% to $2.22 billion, adjusted operating income rose 46%, and adjusted earnings per share increased 71% to $3.24. Full-year adjusted earnings guidance moved up to $10.50–$11.00 from $9.75–$10.25. A large piece of that earnings improvement came from something that will not recur: approximately $115 million of tariff refunds received during the quarter. The refund contributed $0.84 to first-quarter adjusted earnings per share and is expected to contribute roughly $0.60 for the full year after Smucker reinvests part of the proceeds. That makes the earnings guidance increase less informative than it initially appears. The midpoint rose $0.75, from $10.00 to $10.75, while the tariff refund contributes roughly $0.60. The more useful signal is elsewhere: Smucker raised its sales outlook by two percentage points and is using some of the unexpected cash to accelerate investment behind Uncrustables. The Quarter Was Strong Even After Removing the Refund Subtract the $0.84 tariff benefit from first-quarter adjusted earnings per share and the result is roughly $2.40, still about 26% above last year’s $1.90. The quarter therefore had genuine operating improvement underneath the accounting windfall. Revenue provides the cleaner evidence. Smucker generated 5% sales growth, with four percentage points from pricing and one point from volume/mix. Coffee did much of the work: U.S. Retail Coffee sales increased 13%, including ten points from pricing and two points from volume/mix. That combination is better than might have been expected after several rounds of coffee inflation. Smucker had contemplated reducing list prices as green coffee costs eased, but commodity volatility has kept prices above the thresholds management uses to trigger a broader list-price reduction. Instead, the company is passing some deflation through promotions. Management is still forecasting low-single-digit coffee volume declines for the full year, so Q1 should not be annualized. But the ability to generate positive volume/mix while carrying substantially higher pricing suggests elasticity has so far been manageable. The Sales Guidance Upgrade Is the Cleaner Signal Smucker now expects fiscal 2027 sales to decline 1%–2%, compared with its previous forecast for a 3%–4% decline. The new outlook assumes neutral volume/mix for the year. That two-point revision is more consequential than the headline EPS increase because it cannot be explained by the tariff refund. It is also occurring despite continued pressure elsewhere in the portfolio. Sweet Baked Snacks sales fell 7%, with volume/mix down eight percentage points, while peanut butter remained soft. Underlying cost inflation is now running in the mid-single digits, somewhat higher than originally anticipated because of freight, commodities and other ingredients. In other words, the improved sales outlook is being generated while several businesses remain works in progress. Uncrustables Is Earning More of Smucker’s Capital The clearest evidence of where Smucker sees incremental returns is its decision to reinvest part of the tariff refund rather than allow all of it to flow through earnings. Selling, distribution and administrative expenses are now expected to rise approximately 8% for the year. Some of that additional spending will fund marketing and advance pre-production expenses at the new McCalla, Alabama, Uncrustables facility. Uncrustables exceeded $1 billion in annual sales last year. Smucker entered fiscal 2027 expecting mid-single-digit growth and has already raised that outlook to high single digits, driven primarily by U.S. retail with additional improvement in away-from-home channels. The operating response is significant. Smucker is accelerating pre-production spending so it can bring McCalla capacity online earlier. Chief Financial Officer Tucker Marshall acknowledged that the segment’s margin profile “may take a slight step back in our next few quarters” as those expenses arrive. That is a healthier reason for near-term margin pressure than deteriorating economics. Demand is pulling capacity forward. The brand is also expanding through several mechanisms simultaneously: greater household penetration, additional distribution, new flavors, higher-protein products, away-from-home growth and the “fridge-friendly” positioning that allows thawed Uncrustables to remain refrigerated for five days. Management has declined to establish a new long-term sales target beyond $1 billion, but its capital allocation is already signaling confidence in the runway. Hostess Remains the Portfolio Test The quarter does not resolve Smucker’s largest portfolio problem. Sweet Baked Snacks generated $236.5 million of sales, down 7%, while segment profit declined 13%. Management characterized Hostess as progressing according to plan, with Donettes and selected innovations performing better, but convenience-store traffic remains weak and the company is still lapping prior SKU rationalization. The first half of fiscal 2027 is expected to remain weaker before sales trends become closer to flat in the back half. That leaves Smucker increasingly dependent on a handful of stronger platforms to offset businesses still being repaired. The next several quarters should therefore be judged less against the reported $3.24 of first-quarter adjusted earnings and more against three operating tests: whether companywide volume/mix remains near neutral as coffee normalizes, whether Uncrustables sustains high-single-digit growth as investment increases, and whether Hostess reaches the flatter second-half trajectory management expects. If those relationships hold after the tariff refund disappears from the comparison, the improvement in Smucker’s earnings base will be considerably more durable than the first-quarter headline suggests.

Walmart U.S. comparable sales grew 2.6% in the second quarter. Excluding the tariff-refund benefit, U.S. operating income still grew roughly 10%. CFO John David Rainey said Walmart has not produced that degree of profit growth relative to its U.S. comp in two decades. Nearly half of the profit growth came from membership, advertising and Marketplace, while Walmart U.S. eCommerce generated double-digit incremental margins in the first half. That combination is the clearest evidence yet that Walmart’s digital investments are beginning to change the company’s profit mix faster than its revenue mix. Pharmacy Is Hiding a Stable U.S. Comp The reported 2.6% U.S. comp makes demand look softer than it is. Walmart’s core merchandise categories have generally grown between 3% and 4% for the past two and a half years. Q2 comp sales excluding health and wellness were 3.4%. The gap came largely from pharmacy: Maximum Fair Price regulation, deflation and brand-to-generic transfers reduced the reported U.S. comp by roughly 125 basis points. Health and wellness has created an unusually large swing in the comparison base. Walmart estimates that changes in GLP-1 contribution and pharmacy pricing together account for roughly a 200-basis-point year-to-date swing versus the trailing two-year pace. The underlying retail business remains steadier. Transactions grew 1.5%, unit volumes increased, and Walmart continued gaining share across categories and income tiers. Walmart is also leaning harder into price. Rollbacks increased from roughly 7,200 at the end of Q1 to more than 11,000 during Q2. Management says those investments are already producing unit growth and stronger food share, while price gaps to conventional grocers continue to widen. The second-half sales outlook assumes those price investments translate into stronger transactions and sustained share gains. Digital Is Finally Producing Incremental Margin Walmart U.S. eCommerce grew 24% in Q2, extending a run of more than 20% growth to ten consecutive quarters. Store-fulfilled delivery grew more than 40%, average weekly customers increased 20%, and Marketplace sales rose more than 50%. The newer development is profitability. Walmart U.S. eCommerce produced double-digit incremental margins during the first half. Management attributed the improvement to advertising and membership revenue, denser delivery routes, paid fast delivery and automation. Fee-based fast delivery reached a record 37% of store-fulfilled deliveries, while more than half of eCommerce fulfillment volume now moves through automated facilities. Those operating details help explain why the economics of a digital order are changing. More volume moving through the same network improves asset utilization and route density. Walmart is also getting paid for speed: expedited delivery has become a meaningful revenue stream rather than simply another fulfillment cost. At the same time, advertising and membership add higher-margin revenue around the retail transaction. Marketplace adds another layer. U.S. Marketplace sales grew 52%, and nearly half of Marketplace volume flowed through Walmart Fulfillment Services, up roughly 400 basis points from last year. Selling another case of detergent through a supercenter still produces traditional retail economics. A customer acquired through Walmart’s digital ecosystem can also generate membership fees, advertising demand, Marketplace activity and fulfillment revenue. That is why Rainey’s disclosure that nearly half of profit growth came from membership, advertising and Marketplace carries more weight than another quarter of 20%+ eCommerce growth. Walmart’s Stores Are Becoming Profit Infrastructure The store network sits underneath much of this improvement. Stores now fulfill roughly 80% of Walmart U.S. eCommerce orders and every fast-delivery order. eCommerce represents more than 23% of Walmart U.S. sales, roughly double its mix five years ago, yet more unit volume is moving through the stores because they increasingly function as local fulfillment nodes. Fast delivery grew 48% in Q2, and Walmart has expanded sub-30-minute delivery into 38 U.S. markets. Management says customers who use faster delivery shop more frequently and are more likely to become Walmart+ members. The same physical footprint that once looked like a disadvantage versus asset-light eCommerce competitors is now serving multiple functions: store, inventory location, fulfillment node and customer-acquisition infrastructure. Membership strengthens the economics further. Walmart+ posted double-digit growth, and members spend roughly four times more with Walmart than non-members. Advertising grew 38% globally, Walmart Connect grew 43% excluding VIZIO, and Marketplace expanded assortment without requiring Walmart to own all of the inventory. Chief Growth Officer Seth Dallaire has described these businesses as deliberately connected: stronger eCommerce supports membership, membership increases frequency and wallet share, Marketplace broadens assortment, and sellers create additional advertising demand. That strategy has been visible for several years. Q2’s incremental-margin disclosure provides better evidence that the economics are beginning to follow the architecture. Q3 Will Test Whether the Economics Hold Q2 itself is a poor standalone margin benchmark. Adjusted operating income grew 17.4% in constant currency, but roughly 750 basis points of that growth came from tariff refunds. Excluding the benefit, underlying operating-income growth landed at the top end of Walmart’s 7%–10% guidance. Walmart has received substantially all of approximately $2.9 billion in eligible refunds and is reinvesting much of that money into price and customer experience. That shifts some of the economics into Q3. Adjusted operating-income growth is expected to slow to 2%–4% as the full-quarter effect of those price investments comes through. Management estimates that Q2 and Q3 operating-income growth together would average roughly 10% per quarter. Walmart is also absorbing more than $2 billion of incremental fuel costs this year and has raised expected capital expenditures from roughly 3.5% to 4% of sales. Even with those pressures, management raised full-year constant-currency sales guidance to 4%–5% and adjusted operating-income growth guidance to 7%–8.5%. The cleanest proof point from here is Walmart U.S. eCommerce incremental margin. If digital growth remains above 20% and incremental margins stay in the double digits after the tariff-refund benefit rolls through, Walmart will have stronger evidence that advertising, membership, Marketplace, automation and delivery density are creating a structurally better earnings model. If those margins compress materially as fulfillment costs, capital spending and price investment rise, Q2 will look more transitional than structural.