WMT Q2 2026: US e-commerce +26%, margin headwinds from cost pressures
- Robust e-commerce performance: Walmart reported 25% global e-commerce growth and 26% in the U.S., accompanied by significant advancements in delivery speed (with roughly one-third of store-based deliveries under three hours and 20% in under 30 minutes), underscoring strong digital momentum and a sizeable runway for market share gains.
- Prudent inventory and margin management: The company exited Q2 with only 2% inventory growth, efficient sell-throughs, and a significant increase to over 7,400 price rollbacks, highlighting effective mix management and pricing discipline that support both revenue and margin stability.
- Strategic investments in AI and digital transformation: Walmart’s commitment to leveraging AI—exemplified by initiatives like the “Sparky” digital assistant—and expanding higher-margin businesses (advertising and membership, with advertising growing nearly 50% globally) positions it to drive future operating income and long-term profitability improvements.
- Margin Pressures: Executives highlighted uncertainty in gross margins—citing lower-than-planned markups, aggressive markdowns, and dynamically changing pricing strategies to pass on cost pressures—which could weigh on profitability if these headwinds persist.
- Competitive Dynamics: A question raised about a major competitor expanding grocery delivery underscores the risk that Walmart may need to invest more heavily to keep pace, potentially compressing margins and diverting focus from its core strengths.
- Cost-Related Uncertainties: The discussion included references to unexpected cost pressures, such as additional claims expenses and tariff-related uncertainties, that may continue to disrupt operating income despite strong sales growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue growth | Q3 2026 | 3.5% to 4.5% on a constant currency basis | 3.75% to 4.75% on a constant currency basis | raised |
Operating Income Growth | Q3 2026 | no specific range provided | 3% to 6% growth on a constant currency basis | no prior guidance |
Sales Growth | FY 2026 | Approximately 4% | 3.75% to 4.75% growth (raised by 75 basis points) | raised |
Operating Income Growth | FY 2026 | No specific numeric range provided | 3.5% to 5.5% on a constant currency basis | no prior guidance |
EPS Guidance | FY 2026 | No specific figure provided | Raised to reflect lower headwinds from currency | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
E-commerce Performance and Profitability | Described in Q1 2026 with achievement of global and U.S. profitability and moderate growth , in Q4 2025 with 16–20% growth and margin improvements , and in Q3 2025 with 27% global sales growth and narrowing losses. | Q2 2026 call emphasized 25% global growth, robust profitability improvements driven by faster delivery, marketplace expansion, and higher‐margin ancillary streams. | Consistent high growth with enhanced profitability; the narrative has evolved to highlight accelerated marketplace expansion and profitable ancillary revenue streams while remaining positive. |
Inventory, Margin, and Pricing Management | Addressed across periods with Q1 2026 emphasizing healthy inventory growth and margin gains , Q4 2025 highlighting improved inventory flow and gross margin expansion , and Q3 2025 noting efficiency in inventory and pricing. | Q2 2026 focused on strong daily inventory management, slight margin tailwinds from markdowns and competitive pricing through aggressive rollbacks. | Persistent focus with steady operational discipline; the emphasis continues on maintaining healthy inventory levels and competitive pricing with marginal enhancements in efficiency. |
Digital Transformation and AI Investments | Discussed in Q4 2025 with AI agent initiatives and digital transformation efforts and in Q3 2025 with generative AI applications and automation in operations. Q1 2026 had no mention. | Q2 2026 introduced strategic acceleration in AI with new leadership roles, AI super agents like Sparky, and enhanced digital capabilities. | Increased and more structured focus; a new wave of AI and digital transformation initiatives is evident, building on prior discussions and marking a sharper strategic emphasis in Q2 2026. |
New High-Margin Revenue Streams | Covered in Q1 2026 with robust advertising, membership, and fulfillment services developments , in Q3 2025 with 28%–42% advertising and significant membership contributions , and in Q4 2025 with dividend and revenue growth angles. | Q2 2026 emphasized strong global advertising growth (up to 50%), double-digit membership income growth, and increased fulfillment service penetration. | Steady and reinforcing importance; these revenue drivers remain central and continue to improve, demonstrating further contribution to overall profitability in a positive tone. |
Tariff, Cost Pressures, and Operational Risks | Discussed in Q1 2026 by addressing tariff impacts on pricing and inventory management, along with mitigation strategies , in Q4 2025 with confidence in managing tariffs , and in Q3 2025 with mention of external cost disruptions. | Q2 2026 delved into ongoing tariff-induced cost pressures, higher claims expenses, and adjustments in pricing strategies with detailed focus on mitigating operating risks. | Ongoing cautious management; while tariffs and cost pressures remain a concern, the current period shows a more nuanced discussion of claims and operational risks, reflecting a cautious yet confident stance. |
Macroeconomic and Consumer Demand Uncertainties | In Q1 2026, there was acknowledgment of shifting consumer behavior towards value amid economic uncertainty ; Q4 2025 discussed resilient consumer behavior and balanced guidance ; Q3 2025 noted steady consumer value focus. | Q2 2026 highlighted evolving economic uncertainty with customers moderating discretionary spending but underscored increased guidance and close monitoring of CPI and wage trends. | Balanced outlook with cautious optimism; Walmart continues to navigate economic volatility by emphasizing value and proactive adjustments, while raising confidence in overall performance. |
Competitive Dynamics in Grocery Delivery | Q1 2026 noted rapid delivery growth and emphasis on value and speed ; Q4 2025 detailed expedited delivery coverage and integration of pharmacy services ; Q3 2025 mentioned strong delivery performance alongside customer-centric initiatives. | Q2 2026 addressed competitor moves directly but reaffirmed a focus on meeting customer needs in price, assortment, and convenience. | Steady emphasis on customer focus; despite increasing competition, Walmart remains committed to enhancing delivery capabilities and convenience rather than reacting to competitors, reflecting a consistent, customer-first strategy. |
External Disruptions and Unforeseen Operational Impacts | Q1 2026 mentioned tariff timing and related cost challenges, inventory swings, and casualty claims ; Q4 2025 briefly noted economic uncertainties and geopolitical conditions ; Q3 2025 detailed impacts from hurricanes and port strikes. | Q2 2026 discussed higher claims costs, dynamic cost environments due to tariffs, and operational disruptions, with proactive measures implemented in response. | Variable external challenges managed proactively; the current period presents a detailed focus on claims-related costs and dynamic pricing amidst external disruptions, indicating robust risk management. |
Capital Allocation and Free Cash Flow Strategies | Q1 2026 emphasized CapEx commitments, aggressive share buybacks, and debt issuance for growth ; Q4 2025 highlighted a significant dividend increase and planned buybacks along with positive free cash flow trajectory ; Q3 2025 had no specific mention. | Q2 2026 outlined a strategic, balanced approach with continued investments in tech and automation alongside aggressive buyback activity that is 50% higher than the previous year. | Evolving with a strong shareholder emphasis; capital allocation remains a priority and is now increasingly aggressive in share buybacks, reinforcing prior steady strategies with elevated returns. |
Emerging Product Mix Challenges | Q1 2026 acknowledged strong health and wellness growth even after excluding GLP-1 drugs, with pharmacy delivery initiatives bolstering momentum ; Q3 2025 noted a 1% sales contribution from GLP-1 drugs with margin pressure ; Q4 2025 described mix challenges affecting gross margins. | Not mentioned in Q2 2026. | Reduced emphasis; the absence of discussion in Q2 2026 may indicate stabilization or a deprioritization of product mix challenges such as GLP-1 drug impact compared to previous periods. |
SG&A Expense Pressures from Digital Expansion | Q1 2026 had minimal discussion on digital SG&A, while Q3 2025 identified higher SG&A costs in digital channels with efforts to achieve efficiencies , and Q4 2025 focused on elevated digital transaction costs and investments in automation driving future efficiencies. | Not mentioned in Q2 2026. | Lower current focus; previous discussions highlighted SG&A pressures from digital expansion, but the absence of mention in Q2 may suggest either stable costs or a temporary deprioritization of the topic. |
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Margin Outlook
Q: What's masking underlying profitability?
A: Management explained that temporary headwinds—such as 560 basis points from higher claims costs—are slightly weighing on margins, while the overall business mix remains robust and the flywheel is strong. -
US Gross Margin
Q: How are US margins faring amid markups?
A: Leaders noted that US margins experienced lower-than-planned markups due to tariff cost adjustments and tactical rollbacks, yet they expect these pressures to ease as inventory management and pricing strategies normalize. -
Pricing Strategy
Q: What is the company’s pricing approach?
A: Management emphasized that by executing over 7,400 rollbacks and adjusting pricing tactically, they are balancing tariff-driven cost pressures with customer value, ensuring competitive pricing across all segments. -
Inventory Health
Q: How is inventory positioned for Q3?
A: Executives highlighted that inventory is managed very well—with Walmart US exiting the quarter with approximately 2% inventory growth and sound sell-through—positioning the company favorably as it moves into the back half of the year. -
Capital Allocation
Q: Any updates on capital deployment plans?
A: Management reiterated a disciplined approach, underscored by aggressive share buybacks exceeding $6B year-to-date, while continuing to invest in high-return areas such as technology and supply chain improvements. -
Competitor Delivery
Q: How do grocery competitors’ moves impact Walmart?
A: Leaders responded that although competitors are expanding grocery delivery capabilities, Walmart’s focus on a robust store network and delivering superior customer value helps protect its margins and market position. -
E-commerce Profitability
Q: How is global e-commerce performing?
A: Management reported strong digital growth—with US e-commerce up 26%—driven by advertising and membership revenue, even as international e-commerce improves gradually despite current losses. -
International Strategy
Q: What’s the plan for Canada, India, and Mexico?
A: Executives outlined that a unified commerce platform in Canada and Mexico, along with rapid fulfillment advancements in India, are central to enhancing the international business’s long‐term profitability and market reach. -
AI Implementation
Q: When will AI materially impact sales?
A: Management expressed enthusiasm for AI’s potential and has established dedicated roles for it, though they emphasized that AI is still in its early stages and is not yet driving material top-line growth, with benefits expected to emerge over time. -
Holiday Outlook
Q: How strong is the holiday season expected to be?
A: Based on encouraging back‑to‑school trends, proactive inventory management, and robust digital channels, management is confident of a solid holiday season that will build on current momentum.
Research analysts covering Walmart Inc.