Walmart Inc. (WMT) Q2 FY2027 earnings call

Summary

Strongest causal claim (Rainey, Q&A): "we have seen some incremental pressure on the consumer relative to the beginning of the year with higher fuel prices… you can tell when fuel prices increase and got above $4, and perhaps there is a psychological impact… June was a little more obvious… customers making trade-offs." Guidance assumes fuel costs persist and now embeds more than $2 billion of incremental fuel-related costs above the original FY guide — first-party corroboration of the fuel→consumer-choice channel in iran-fuel-shock-consumer-bifurcation, routed to grocery value / rollbacks / private label (bettergoods $1B brand) rather than off-price apparel.

Headline: Enterprise cc sales +5% (top of 4–5% guide); adj OI +17.4% cc (750bps net tariff-refund benefit; underlying at top of 7–10%); FY sales raised to 4–5% and adj OI to 7–8.5%; adj EPS $2.80–$2.87. Walmart US comps +2.6% ex-fuel, −125bps from Maximum Fair Price pharmacy; core merchandise ex-H&W still 3–4%. Global eCommerce +23%; membership fee revenue +17%; 11,000 rollbacks (from 7,200 in Q1). IEEPA tariff refunds ~$2.9B substantially received, reinvested into grocery and GM price.

Dated catalysts / falsifiers: Q3 sales guide 3.0–3.75% (Flipkart Big Billion Days >100bps Q3 headwind, reverses in Q4); Q3 OI 2–4% as refunds reinvest; fuel-cost assumption is the load-bearing macro input.

Transcript

Operator:

Greetings. Welcome to Walmart's Second Quarter FY 2027 Earnings Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now turn the conference over to Steph Wissink, Senior Vice President of Investor Relations. Thank you, Steph. You may begin.

Steph Wissink:

Welcome, everyone. Joining me today from our home office in Bentonville are CEO John Furner and CFO John David Rainey. We will begin with highlights of the previous quarter and our outlook for the year. Then we will open the line for your questions. During the question and answer portion, we have invited Seth Dallaire, our Chief Growth Officer, as well as segment leadership to join. David Guggina from Walmart U.S., Chris Nicholas from Walmart International, and Latriece Watkins from Sam's Club U.S. So we can address as many of your questions as possible, please limit yourself to one question. For additional detail on our results, including highlights by segment, please see our earnings release and supplemental presentation on our website. Today's call is being recorded, and management may make forward-looking statements.

John Furner:

Good morning, and thanks for joining us. I want to start by thanking our associates around the world. Their commitment to serving customers and members every day is what drives our business, and the results we delivered this quarter reflect their hard work. This was a good quarter for Walmart and shows once again that our strategy is proving out. We have been investing against it for years, and I am even more bullish today as we see the pieces increasingly powering each other. A strong retail foundation alongside faster-growing businesses like Marketplace, advertising, and membership. The math is not simply one plus one equals two. The value comes from how these businesses work together, with each one strengthening the others and expanding what the company can do as a whole.

John Furner:

I'll close my comments where I began, and that's by thanking our associates. The progress we're making is possible because of the way they serve customers and members each and every day, the way they embrace new technology, and the way they continue to find better ways to operate. I'm excited about the momentum we have, confident in the strategy we're executing, and even more optimistic about the opportunities ahead. With that, I'll turn it over to John David to walk through the quarter in more detail. John David.

John David Rainey:

I'll echo John's sentiments. We're pleased with the way our business is performing, especially during the more recent operating environment that's been marked by some near-term macro crosswinds. Our business model is only getting stronger and more durable, and this gives us confidence to raise our sales and operating income growth guidance for the year. With the tariff refunds, there are some idiosyncrasies to this quarter's results, so I'll provide a deeper view of the impacts and discuss how we're thinking about these factors looking into the second half of the year. First, I'll start with the financial and operational highlights. Enterprise net sales growth in constant currency of 5% was at the top end of our guidance of 4%-5%, driven by growth in e-commerce, Sam's Club, and China. This quarter demonstrates the benefits of our diversified portfolio of businesses across channels, formats, and markets.

Operator:

Thank you. We will now be conducting a question -and -answer session. If you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question is from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Kate McShane:

Good morning. Thank you for taking our question. We wanted to focus our question this morning on the tariff refunds and price investment. With your most recent incremental pricing investments, I know you mentioned you are expecting a slightly better second half as a result, but have you already started to see an acceleration in units? Just given the price investment is such a focus in the market, can you talk about vendor support versus how much Walmart is investing, and how do you sustain these lower prices and lock this investment in 2027?

John Furner:

Hey, Kate. Thanks for the question. This is John. Let me just start by saying I'm really pleased with the quarter for Walmart. This is a good quarter of 5% in sales and strong operating income growth. We've been investing, as you know, in the last few years in the strategy to drive a very powerful omni-business, and we're proud of the progress. I've been a part of building the strategy for a year, and it's great to see it come together. We want to be really flexible for customers, whether they shop at the counter or at the curb or delivery to their home. Customers are looking for value, and our team is executing that well. We had a good quarter in Walmart U.S., international, and Sam's Club. The result of that is we have seen share gains, and we're pleased with share gains across the business.

Operator:

The next question is from the line of Simeon Gutman from Morgan Stanley. Please proceed with your question.

Simeon Gutman:

Hey, good morning, everyone. I guess I have two parts. The first is, the lower -income consumer has faced pressures for the better part of several years. Is there anything different even about this environment with gas prices that you think has accumulated to weigh on them further? Then it is related to the prior question, and I think some of John David's prepared remarks, the elasticity function to some of these price investments and rollbacks. I know you mentioned you see it immediate. Can you give us some context? Then is there traditionally a little bit of a lag where you start to see a more, I guess, more impactful response over the next, call it, six months? Thank you.

John David Rainey:

Simeon, this is John David. Thanks for your question. We, no doubt, and it sort of states the obvious, have seen some incremental pressure on the consumer relative to the beginning of the year with higher fuel prices. As you go through month by month in the last quarter, you can tell when fuel prices increase and got above $4, and perhaps there is a psychological impact to that there are choices that consumers are making. June was a little more obvious as we look at the quarter in terms of customers making trade-offs. It is why we have leaned so heavily into lower prices. You are right. There is elasticity on these items that we roll out. We talked about 11,000 rollbacks. We are really proud of that and how we are trying to be there for our customers and members during this period of time.

John Furner:

Simeon, with the rollbacks and the other investments, we exited the first quarter, as we mentioned earlier, at about 7,000 rollbacks. It is normally about five. At the end of the quarter, we had 11. When you take rollbacks in consumable categories like food, you tend to see first a unit increase, and we saw transactions in units grow in the quarter. Then that does create a temporary deflationary effect. But as the units grow over time, particularly in food, then the share gains come through. We were really pleased with the recent share report in food. It is one of the strongest reports we have had in some time. So we are pleased with those. But again, we will handle this thoughtfully. Our hope and intention always is that rollbacks can become permanent price increases wherever possible. We have a line of sight to those.

Operator:

The next question is from the line of Greg Melich with Evercore ISI. Please proceed with your question.

Greg Melich:

Oh, hi. Thanks. I'd love to follow up on where you're seeing tariff rates going forward. Are the effective rates under the new sections coming in higher or lower than IEEPA? Then my follow-up is on the baseline into 2027. Should we think about operating income still growing up to 2x sales as we see the traffic results from the price investment? Thanks.

John David Rainey:

The assumption that we have with respect to tariff rates is basically at the level that we're experiencing today. Stands true for where fuel prices are as well. So if there's some improvement in fuel prices, I think that's a benefit to our forecast. On operating income for 2027 and the outer years, look, we have a lot of confidence in our ability to continue to grow the bottom line at a much faster rate than we have the top line. But I don't want to miss the top-line growth, too. To have what is roughly three-quarters of a trillion dollars of a revenue base and be able to grow at 4%, 5%, 6% a year—that's meaningful growth. What's notably different, though, is how profitable that growth is. So, let's step back for a second and just think about the U.S. comp. U.S. comp is at 2.5%.

Operator:

The next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

Brad Thomas:

Good morning. I want to ask about the health and wellness category and appreciate all the detail you shared this morning. It has really been an outsized contributor to growth over the last few years and still seems to have a bright outlook. I was hoping you could speak to that multi-year outlook and maybe how to think about the impact of fair pricing, particularly as we look out over a couple of years here. Thank you.

John Furner:

Hey, Brad. As we mentioned, there definitely has been an impact. In prior years, it was a tailwind, and it was a headwind in the quarter. That is on slide 14 in the supplemental materials. So we want to provide the transparency we can. But we do not want to at all signal that we are unpleased with the health and wellness business. Lower prices help over the long term. We have a legacy of lowering prices in pharmacy back to the $4 generics, which has been exciting. But I am going to have Dave talk about the business overall. We are really energetic about not only the underlying performance of health and wellness, but health and wellness customers, pharmacy customers, they spend more, and I think there is some really important detail that Dave is going to add.

David Guggina:

Absolutely, John. We feel very good about the underlying momentum in the health and wellness business. Prescription volumes continue to grow. We are gaining market share, and customers are responding strongly to the convenience that we are building around pharmacy. I do want to highlight health and wellness. This customer cohort is incredibly important for us. When someone becomes a health and wellness customer, they spend on average three times more than the average Walmart customer. When they begin using pharmacy delivery in addition to being a health and wellness customer, that almost doubles, yet again. We have a very unique opportunity to connect our pharmacy expertise, our digital capabilities, and our local fulfillment network to make healthcare more convenient and accessible while deepening our relationship with these customers.

Operator:

Our next question is from the line of Michael Lasser with UBS. Please proceed with your question.

Michael Lasser:

Good morning. Thank you so much for taking my question. You articulated a lot of confidence that the Walmart U.S. comp is going to accelerate as the lagged impact from these price investments start to gain traction. A, have you already started to see that? B, if that does not happen, what are you thinking about in terms of incremental price investments from here in order to drive the top line as you move not only into the back half but also into 2027, especially as the benefit of all these tax-free flowing states? Thank you so much.

John Furner:

Hey, Michael. Good morning. First, Every Day Low Price is a philosophy that builds trust with customers, and we are proud to offer a value on a basket of goods that is predictable, it is consistent over time. When we have the opportunity to lower prices, of course, that is always going to be our bias to do that. We always need to balance our price investments relative to what we are seeing in the market and with the commitments we made on our forecast, including operating income over time. We will continue to work through those. I do think it is also important to step back and just think about the business model in total. John David mentioned the growth in things like membership, advertising, data, fulfillment services. We built a much more durable and resilient model that gives us optionality over time.

Operator:

Our next question is from the line of Chris Nardone with Bank of America. Please proceed with your question.

Chris Nardone:

Great. Thank you, and good morning, team. Can you refresh us on the messaging around incremental margins coming out of your digital business, given the momentum we're seeing there? As we think ahead to next year, how should we think about your plan to lap these rollbacks and price investments you are making today and still make sure you're driving consistent traffic to your stores? Thank you.

John David Rainey:

Chris, I'll take that. Let me start with the second part of your question. Lapping 19% EPS growth next year will be a challenge. Again, we're managing our business on an annual, if not a multi-year basis, but feel really good about what is in store for the next year and the years to come. On the incremental margins, which as I noted in my previous answer, I think that's a big part of the story for us. We continue to see these growth areas of our business that are driving more benefit to the bottom line. We've not really committed to any certain number around the incremental margins in our business, but if you look back over the last call it six quarters or so, generally, U.S. e-commerce incremental margins have been in that high single digit to low double digit range.

Operator:

The next question is from the line of Christopher Horvers with JP Morgan. Please proceed with your question.

Christopher Horvers:

Morning. Thanks for taking my question. If you look at the category performance relative to 1Q and the Walmart U.S. business, grocery continued to grow that strong mid-single digits well above the market, and it was gen merch that actually slowed. Could you help us think about how much of that slowdown in gen merch was stimulus-related versus gas prices affecting that lower-end consumer? Then if you look back over the past few years, you've seen a consumer that has shown up around events, and to what extent have you seen the impact of back -to-school starts to drive some lift in that gen merch business, even considering where gas prices sit today? Thanks so much.

John David Rainey:

Chris, why don't I start and then maybe hand it over to Dave for a little more color? I think no doubt the first quarter benefited from the stimulus payments related to tax refunds. We acknowledged that on the last call. It's tough to determine how much you ascribe to what's going on in your business versus the overall macro environment, but I think we definitely benefited some from that. Then as we go into the second quarter, we saw gas prices peak at higher prices than what we saw in the first quarter. I think all of that impacts the results. Again, when you look at the core business and the fact that our value proposition, I think, is as strong as ever, we feel really good about how we're performing and what the outlook is. Back to school, back to college.

David Guggina:

Yeah. John David, what I would add is we're very pleased with the team's progress in general merchandise. We are seeing strength in style, we are seeing strength in trend, we are seeing strength in fashion and toys. In fashion, I am really excited about some of our private brands, Scoop, Free Assembly. We are seeing triple-digit comps in those areas. When it comes to back-to-college, decor outperformed across the back-to-college home business. Areas to call out would be candles, throws, rugs, and lamps. Those all posted double-digit and triple-digit comps. When it comes to back-to-school, as John David mentioned, this is where we shine. Walmart sells roughly 50% of total industry school supplies from a unit standpoint over the season. We are very pleased with where we are at this point in the year.

Operator:

Our next question is from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Krisztina Katai:

Hi, good morning, and thank you for taking the question. I also wanted to focus on the price investments from a return perspective, right? You noted 50% sequential increase in rollbacks, I believe 11,000 items, which might be a new record for Walmart. I wanted to ask if you could speak to the performance of the incremental rollbacks, the metrics and the payback period that determine whether an investment becomes permanent, and maybe just frame up for us, if you can, just how much of the current rollback portfolio is meeting those return thresholds. Thank you.

John Furner:

Krisztina , throughout the year, we have stated that our intention would be to invest in price where possible, and any refunds that we had, we would prioritize price investments, and that's what we did in the quarter. Categories, as an example, like the meat department. Prices have been higher, and we know that customers have needed relief, so we invested in ground beef and other areas that were really important to the customer. We'll watch those over the course of the time. A rollback has a start date; it has an end date. We'll watch the unit movement. We'll understand the effect on the category. Importantly, the result is we're seeing share gains, and share gains are ultimately the way we would judge how we're doing relative to the other businesses that are out in the market.

Operator:

Our next question is from the line of Bob Drbul with BTIG. Please proceed with your question.

Bob Drbul:

Hi. Good morning. Just a couple of questions around, I think, inventory. Are there pockets of concern on your inventory levels at all? You mentioned inflation impacting the inventory. Can you just also address your inflationary expectations for the remainder of the year throughout the business?

John Furner:

Bob, generally, we've seen a pretty low inflationary environment throughout the year. We're between 1% and 2% in total. The rollbacks we think can help over this quarter and the last few months. So, generally not any big concerns right now on inflation. Fuel costs are probably the one thing that, of course, we're watching because of the magnitude of it, and hopefully those can come down over time. On inventory, it's something we watch really carefully. I've been in the company over 33 years. I've been a merchant, an operator, and it can drive so many things from sales to markdowns, cash flow, as you know. When you step back and look at the categories, and I'm going to talk about Walmart U.S. just for a second, because that's the majority of our inventory, the merchandise areas are in good shape. We're up anywhere from one to four.

Operator:

The next question's from the line of Kelly Bania with BMO. Please proceed with your question. Kelly, your line is live. Please ask a question.

Kelly Bania:

Hi. Thanks for taking our questions. Wanted to just circle back on the topic of tariff refunds, curious just how you are communicating this to your customers and membership base to ensure you're generating the ROI that you expect from these investments. Are you seeing others across the retail spectrum also reinvest those, or do you expect them to also follow suit? If you can also include just the thought process about allocating those investments between grocery and general merchandise, it's presumably generated on the general merchandise side but sounds like some going into the grocery side of the store. Just more details on the tariff refunds.

John Furner:

Kelly, we've invested across the business. In the store today, store being the site and the physical store, you'll see a combination of rollbacks across food, general merchandise, consumables, fashion. There were some seasonal rollbacks. There are other items where there are ongoing replenishable items. We always try to invest in a mix. We're not trying to take the investment and heavily weight it to a certain category. We know customers are looking for a variety of things across the basket. At a time like back to college and back to school, as you heard from Dave earlier, we think about decor and outfitting a dorm. There's the school supplies, the school lunches. You'll see it throughout the store. The signing in the store, we feel great about. The stores are doing a really good job signing it.

Operator:

Our next question is from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Paul Lejuez:

Hey, thanks, guys. Just on the price investments, could you talk about how that's framing your comp assumptions from a traffic versus ticket perspective in the second half? Sorry if I missed that earlier. Also curious on the OpEx growth in the U.S. is up 7%. Were there any timing shifts that impacted that? Are the liability claims coming in a bit above what you thought? Just curious how we should think about that line item and how it will grow in the second half of the year. Thanks.

John Furner:

Sure. Let me take the first part on the composition of the comp. It was positive to see. It was great to see in the quarter that we grew in transactions. That's true at Walmart. That's Sam's Club. It's true in international. So we see customer traffic growing around the world. We also had positive unit growth. And both of those combined, they're really the two things we talk about on a weekly basis. We start every Monday around the world in markets with something we call our trade meeting, and we talk about customer sentiment and how many customers we were able to serve, how many new customers we met, the units that we grew. So we look at both of those.

John David Rainey:

Yeah. Paul, on SG&A, let me address that on a couple parts. One of the bigger drivers was depreciation. Depreciation is related to the CapEx that we've had that has really been around supply chain automation and addressing speed. Look, we are really pleased with the results that we're seeing. Just in the current quarter, the number of units that we delivered in less than 30 minutes doubled from a year ago. 70% of all of our e-commerce orders are delivered same day or better. That doesn't come without the investments that we've made. So we're really pleased there. We did have some pressure on what we're calling some of the self-insurance items, and the two categories that I would put in there are claims, as you asked about, but also group health.

Operator:

All right. Next question is from the line of Zhihan Ma with Bernstein. Please proceed with your question.

Zhihan Ma:

Thank you for fitting me in. I wanted to follow up on the Walmart U.S. brick-and-mortar comp. I appreciate the comment that you were saying there's a bit of a pharmacy headwind in there. I am also wondering if you are seeing any impact from higher gas prices and people maybe driving less to stores and maybe the greater adoption of pharmacy delivery. I am just trying to parse out how much of that is maybe some transitory impact versus a more structural shift in the channel. Thank you.

John Furner:

Let me start with the first part on the stores. I want to be really clear: stores are an asset. They certainly have an impact on heading back the quarter because of pharmacy, which weighs heavily on the store comp. The majority of the business is in store, but we are really pleased also with the delivery of the business. When you step back and you think about stores and their role in the omni business, they are an asset because they position inventory, they position associates within 10 miles of 95% of the country. The things you have heard this morning about fast delivery, accuracy, flexibility, shopping any way you want, they would not come to life without our stores.

Operator:

Thank you. The next question is in the line of Seth Sigman, Barclays. Please proceed with your question.

Seth Sigman:

Hey, good morning, everyone. I wanted to follow up on the Walmart U.S. comp. When we look at the average ticket, it does seem like it's running a little bit below inflation now, and that's been happening for the last couple of quarters. I realize a lot can contribute to ticket, but how is the composition of the basket changing? Are you seeing trade down? Are you seeing any big category mix shifts? Are you seeing a shift to maybe smaller ticket items? Anything transitory? How would you frame that? Thanks so much.

David Guggina:

Yeah. We continue to see broad-based share gains across many categories. Our strategy is working, and therefore, we're gaining share. In grocery, sales increased mid-single digits with strong unit volume growth and continued market share gains, as I noted. Areas that I'd call out in that business. One, we used some of the investments, refunds that we got to invest into the grilling basket this summer, which fed eight people for under $40, with 13 of those items priced 16% below last year. We're also offering incredible quality for great value with our bettergoods brand, which is now a billion-dollar brand for us. Then to go back to back -to -school, we're bringing food into that play as well, including a new back-to-school lunch basket with 10 high-protein lunches for under $2.

Operator:

Thank you. At this time, we've reached the end of our question -and -answer session, and I'll turn the floor back to management for closing remarks.

John Furner:

Yeah. First, again, I want to thank our associates for the work they did in the quarter and the things they do for our customers every day, and I want to thank you for taking the time and interest in the company. I'll just close where I started. This is a good quarter for Walmart. Sales were up over 5%, operating income up 74% without the benefit of the refunds. It was another strong quarter. I feel great about the way we're positioned. We've been investing in a strategy that delivers an omni-business model across markets. I'm really excited about the extension of platforms into the international businesses. There's a lot of progress. The teams are moving with speed. When you just step back and look at the business that we have and the business we're building, it's very durable. It's reliable.

Operator:

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.