The world’s largest retailer beat on revenue, beat on earnings, and raised its full-year outlook. Then the stock fell 9% anyway, notching its worst single session since May 2022. That sequence tells you everything about what investors are actually debating right now at Walmart.
Why This Stock Matters Now
Walmart shares tumbled after the retailer posted its slowest U.S. comparable-sales growth in more than six years and issued a third-quarter profit forecast that fell short of Wall Street estimates, raising concerns about the health of the U.S. consumer. The quarterly result looked fine on the surface: adjusted EPS came in at $0.81 against a consensus of roughly $0.74, while total revenue of approximately $187.94 billion exceeded analyst estimates, rising 5.9% year over year. But the market stripped that away in seconds when it found the detail underneath.
It was the first time in at least five years Walmart’s same-store sales fell short of analysts’ expectations. Average ticket, or spending per transaction, grew 1.1%, versus a 3.1% rise a year earlier. That deceleration in basket size is the number that broke the stock.
The Investment Thesis
The market is treating this as a consumer-health story. It is partly that, but it is also partly a policy story, a pharmacy story, and a valuation reset story arriving at the same moment. Investors willing to separate those threads will find a company whose most important businesses, advertising, e-commerce, and membership, are accelerating even as the headline comp stumbles. The question is whether those businesses are large enough, and growing fast enough, to justify buying a stock that still trades at roughly 37 times forward earnings after a 23% decline from its May peak.
The Business Behind the Stock
Walmart’s core retail operation, the low-margin, high-volume grocery machine that built the franchise, is showing real strain. The world’s largest retailer said shoppers remain under pressure from higher gas prices, while lower pharmacy pricing also weighed on sales. Specifically, the company blamed roughly 125 basis points of that slowdown on pharmacy deflation tied to the Maximum Fair Price policy in Medicare, along with brand-to-generic drug transfers. Strip out health and wellness entirely, Walmart U.S. comparable sales increased 3.4%, a figure that would not have caused much hand-wringing in a typical quarter.
The consumer pressure is real, though. CFO John David Rainey said Walmart continues to see consumers stretched thin, especially with higher gas prices. Fuel costs are not abstract: Walmart also expects to incur more than $2 billion of incremental cost headwinds related to higher fuel prices this year.
The tariff refund picture complicates the read further. Walmart reported that it has received $2.9 billion in tariff refunds from the federal government after a U.S. Supreme Court decision this year held that the International Emergency Economic Powers Act does not authorize presidential tariffs. That windfall boosted gross margin to 25.4%, but investors noted that the $2.9 billion refund was temporary, and the market appears focused on how margins will perform once that boost fades. Every major retailer reporting this cycle did not necessarily receive an identical refund, so a one-time windfall does not translate cleanly into a sector-wide comparison. Target did report a large tariff-refund benefit of its own, and the market response was different, because its underlying comps held up without the same debate over what is repeatable.
What’s Changing
The part of this business that sophisticated investors should care most about is not the grocery comp. It is the platform Walmart has assembled on top of that grocery base.
In fiscal 2026, Walmart’s global advertising revenue jumped 46% to nearly $6.4 billion. Management also noted that advertising and membership together are now contributing close to one-third of operating income. That is a major shift. This quarter extended that momentum: global e-commerce sales saw a 23% boost for the quarter, while Walmart’s advertising business grew 38% worldwide. Store-fulfilled delivery jumped 43% for the quarter, and marketplace sales climbed 52%. Walmart Connect, the retailer’s advertising arm, grew 43% excluding Vizio.
Advertising, membership, and third-party marketplaces are growing much faster than the underlying retail business, and that matters because these businesses are far more profitable. The structural argument for Walmart’s premium valuation does not rest on grocery comps. It rests on whether those higher-margin businesses become a large enough share of total earnings to rewire the multiple the stock deserves.
On that front, the company also has a $2.9 billion lever to pull. Walmart U.S. delivered more than 11,000 price rollbacks in Q2, up from 7,200 in the first quarter, and management indicated the tariff refund will be funneled into further price investments in Q3, which should mechanically help comparable sales recover.
The Risks
The bear case is not complicated. The market’s reaction was amplified by Walmart’s previously high valuation. The stock had fallen roughly 23% from its record high of $134.20 set in May. Even after the sell-off, at $103.84, the stock trades at about 37 times expected earnings, using the middle of its freshly raised guidance. That is still a premium valuation for a business reporting its weakest comp in six years.
The deeper concern is whether the consumer softness is transitory or structural. Walmart reported its slowest quarterly comparable sales growth in six years and warned shoppers were likely being squeezed by high gasoline prices, stoking concerns that pressure on U.S. consumers is mounting. If fuel prices stay elevated through the back half of the year, management’s expectation that Q3 comps will recover on the back of price rollbacks may prove too optimistic. Management’s third-quarter adjusted EPS guidance of $0.62 to $0.64 fell below Street estimates of $0.68, and the forward EPS guide would require the pricing actions and tariff investments to show tangible results faster than the market currently believes.
One structural risk deserves attention beyond the consumer cycle: Walmart is feeling pressure in its pharmacy business from the implementation of Maximum Fair Price policies in Medicare and from the release of generic versions of some GLP-1 drugs, reducing the company’s revenue from the popular weight-loss drugs. That headwind does not reverse.
What Investors Should Watch Next
Three data points will determine whether this selloff was an overreaction or an appropriate valuation reset. First, Q3 comparable sales: management’s argument is that price rollbacks funded by tariff refunds will pull foot traffic and average ticket back up. Walmart now expects fiscal 2027 net sales to grow between 4% and 5%, up from its earlier target of growth between 3.5% and 4.5%. The full-year raise is notable, but the quarterly EPS miss signals near-term execution risk that investors will grade at the next report.
Second, advertising and membership growth rates. Adjusted operating income has grown faster than sales for three consecutive years, with business mix and automation driving leverage. If Walmart Connect and membership continue expanding at 38% to 46% annually, the platform argument strengthens even if grocery comps stay subdued.
Third, consumer spending indicators outside Walmart’s four walls. Walmart is often viewed as a bellwether for the strength of consumer spending. A broad deceleration across retailers would validate the bear case. A Walmart-specific miss, driven by pharmacy policy and gas prices rather than a pullback across income cohorts, would validate the bull case.
Bottom Line
JPMorgan and Bank of America both maintained buy ratings within 24 hours of the selloff. Major investment firms including JPMorgan and Bank of America reiterated buy ratings, framing the sell-off as an attractive entry point. Of the 44 analysts covering Walmart, 40 have a buy or strong buy on the stock, according to LSEG data. That consensus is not a reason to buy, but it does tell you the structural story remains intact in the eyes of professionals who model this company closely.
The honest answer is that this selloff contains two separate signals that the market collapsed into one price move. The first is a genuine consumer-stress signal: average ticket growing 1.1% when gas is eating wallets is not noise. The second is a one-time pharmacy headwind and a tariff-refund-masked result that obscured what the underlying business actually did. Investors who believe the advertising engine, the marketplace flywheel, and the delivery network are rewriting Walmart’s earnings mix will view $103 as a meaningful entry point below a business still compounding. Those who believe the grocery comp is a leading indicator of something broader will stay away. The Q3 result, due in November, will resolve most of the debate.
