Walmart Inc. (WMT) shares took a hit Thursday, and it's not hard to see why. The retail giant reported quarterly earnings that beat expectations, but the shine came off quickly when investors looked at the details: U.S. sales growth has slowed to its weakest pace since 2020, and the company's third-quarter outlook came in below what Wall Street had hoped for.
For the third quarter, Walmart expects adjusted earnings of 62 cents to 64 cents per share, well short of the 68-cent consensus. Sales are forecast at $183.134 billion to $184.468 billion, versus the $188.339 billion analysts were looking for. That's a meaningful gap, and the market reacted accordingly.
Earnings Beat, but the Underlying Story Is Mixed
On the surface, the second quarter looked solid. Adjusted earnings came in at 81 cents per share, beating the 74-cent estimate. Sales hit $187.9 billion, edging past the $186.8 billion forecast. Global e-commerce sales jumped 23%, with Walmart U.S. up 24%, Sam's Club U.S. up 26%, and International up 19%.
But dig a little deeper, and the picture gets murkier. Walmart U.S. net sales rose just 3.5%, and comparable sales excluding fuel increased only 2.6%. Sam's Club U.S. did better, with comparable sales up 4.4% on 7% transaction growth.
One notable drag: Maximum Fair Price regulations shaved about 125 basis points off Walmart U.S. second-quarter comparable sales. And the company expects a similar headwind for fiscal 2027. That's not a one-time blip; it's a persistent challenge.
On the bright side, e-commerce now makes up more than 23% of Walmart U.S. sales, and stores fulfill about 80% of those orders, including all fast deliveries. International sales rose nearly 8% in constant currency, led by 9.7% growth in China. Enterprise adjusted operating income increased more than 17% in constant currency, helped by tariff refunds that added about 750 basis points to operating income growth.
Price Cuts on 11,000 Items
During the earnings call, executives said Walmart rolled back prices on 11,000 U.S. items in the second quarter. The initiative started in late July, and management said they're pleased with how the back-to-school season is shaping up. The retailer continues to win over higher-income households, a trend that's been a key growth driver.
The company's outlook assumes fuel prices and tariffs stay at current levels. It also anticipates slightly stronger second-half sales than previously expected, thanks to those investments in lower prices.
Full-Year Guidance Raised, but Still Trails Street
Walmart raised its fiscal 2027 adjusted earnings outlook to $2.80 to $2.87 per share, up from $2.75 to $2.85. But the consensus estimate sits at $2.90, so even the raised range falls short. Sales guidance also got a bump, to $734.656 billion to $741.720 billion from $731.124 billion to $738.188 billion, but Wall Street was looking for $752.250 billion.
There are a few other things weighing on the numbers. The company expects more than $2 billion in additional fuel costs this year. The Vibe acquisition and integration will create a 20-basis-point operating income headwind. And the timing of Flipkart's Big Billion Days is expected to shave more than 100 basis points off third-quarter sales growth, with a similar benefit expected in the fourth quarter.
On the tariff front, Walmart was eligible for about $2.9 billion in refunds and has received most of that money. The retailer is reinvesting much of it in lower prices and customer experience, which is a smart move for long-term loyalty but doesn't help the bottom line right now.
At the time of publication Thursday, Walmart shares were down 8.81% at $104.23.
