Walmart FY2026: Too Large to Bend

Figure 2: Personal outlays by income group.

Walmart International - The Growth and Catalyst Engine

The International segment serves as both a high-growth driver and a source of a significant upcoming financial catalyst. While top-line expansion remains robust, reported profitability was heavily influenced by a non-cash charge related to its Indian fintech subsidiary. Key metrics include:

·       Net Sales (Constant Currency): USD 33.7 billion (+11.4%)

·       E-commerce Growth: +26%

·       Operating Income: USD 0.7 billion (-41.7%), impacted by a USD 0.7 billion non-cash share-based compensation charge in anticipation of a potential Indian IPO at PhonePe.

·       Key Drivers: Growth led by Flipkart, China, and Walmex.

This performance highlights the dual nature of Walmart’s international strategy. Underlying operations, particularly Flipkart, are driving double-digit sales growth, though the timing of Flipkart’s “Big Billion Days” event moderated quarterly gross profit rates. At the same time, the explicit charge associated with PhonePe’s potential IPO demonstrates how the monetisation of digital assets is becoming an increasingly material component of Walmart’s consolidated financial reporting.

Meanwhile, China functions as Walmart’s innovation lab. Its E-commerce penetration has reached 50%, with nearly 80% of digital orders delivered in under one hour, demonstrating the scalability and efficiency of the store-as-hub model. In Mexico, Walmex remains a dominant retail presence but faces regulatory headwinds, particularly from antitrust investigations tied to its supply chain practices, which could limit flexibility and growth.

Figure 3: Geographical Segmentation.

PhonePe: Walmart-backed digital payments platform in India offering UPI payments, bill payments, and financial services to consumers and merchants.
Flipkart: Walmart-owned e-commerce marketplace in India, spanning online retail, logistics, and digital services across mass and premium categories.
Walmex: Walmart de México y Centroamérica, Walmart’s listed subsidiary operating supermarkets, discount stores, and membership clubs across Mexico and Central America.

Sam’s Club US - The Membership Powerhouse

Sam’s Club - Walmart’s membership-based warehouse retailer that offers bulk groceries and general merchandise at discounted prices to both households and small businesses, continues to leverage its membership model to generate consistent growth and deepen customer loyalty. The segment’s strength is most evident in its high-margin membership income, which provides a stable and recurring revenue stream. Key metrics include:

·       Net Sales (ex-fuel): USD 23.6 billion +4.4%

·       Comparable Sales Growth (ex-fuel): +3.8%

·       E-commerce Growth: +22%

·       Membership & Other Income Growth: +13.1%

The 13.1% growth in membership income underscores the health of Sam’s Club’s value proposition and its ability to convert membership engagement into recurring revenue. This strength, however, was partially offset by rising operating expenses from strategic investments in associate wages, reflecting the segment’s ongoing focus on both growth and employee productivity.

Adding to that, Sam’s Club has evolved from a traditional bulk retailer into a laboratory for tech-forward retail. Adoption of Scan & Go, which allows members to bypass the checkout line, reached 36% penetration in Q3 FY26. At the same time, membership revenue remains the primary profit engine for Sam’s Club, growing 17% globally in Q3 FY26. By capturing profits through membership, Walmart is able to price merchandise near cost, driving volume without sacrificing profitability and creating a scalable model for future growth.

Figure 4: Walmart’s net sales segment breakdown.

Industry Overview

Walmart operates in a highly competitive discount retail landscape where scale, efficiency, and pricing discipline are critical. Although the companies in Table 2are not direct competitors, Walmart has delivered more consistent same-store sales growth than mass-market peers like Target or various dollar stores. However, the company still lacks the unique margin structure and pricing leverage seen in models like Costco or Amazon.

Despite operating with lower gross margins due to its technology and omnichannel ecosystem creation, Walmart trades on a forward P/E closer to high quality platform and membership models, that is on the higher end compared to peers in the table, implying a level of earnings durability that its grocery heavy mix may struggle to sustain.

Table 1: Same Store Sales Growth (%).

Table 2: Key metrics of Walmart and other retailers.

The Tech Flywheel and the Gravity of Retail

Operational Transformation and E-commerce Expansion

The recent quarters of Walmart’s operational performance have validated a clear and tangible transformation, shifting its investment thesis from one focused on physical scale to a people-led, tech-powered ecosystem. Scale remains at the core of the business, with Walmart generating USD 681 billion in revenue in FY25 and maintaining its position as the world’s largest retailer. Adding to this, Walmart’s omnichannel strategy integrates physical stores with digital platforms, enabling fast delivery, curbside pickup, and in-store shopping.

Along with the “Store-as-Warehouse” advantage, under which over 4,600 stores in the US are located within 10 miles of 90% of the US population, Walmart can deliver to 95% of US households in under three hours and integrate online and offline channels to strengthen customer loyalty and competitive advantage. In FY25, e-commerce accounted for approximately 18% of net sales (USD 121 billion), with US e-commerce growing 28% and global e-commerce growing 27% in Q3 FY26.

Meanwhile, profit growth is also increasingly decoupled from headcount expansion, as seen in 3Q FY26, where high-margin global advertising revenue surged 53%. Such improvement reinforced the strategy of leveraging retail volume to fund high-margin data monetisation. Adding to that, beyond advertising, Walmart is investing billions into structural efficiency, particularly through automation partnerships such as Symbotic, which automate regional distribution centers and reshape the unit economics of fulfillment.

Figure 5: Walmart has been expanding its E-commerce business.

Re-Rating Through the Tech Flywheel

We believe the current valuation of Walmart has priced the company as more than a retailer.

The technology and digitalisation adoptions have made Walmart act as a data and logistics utility, with retail operations primarily serving as the customer acquisition cost for its high-margin ecosystem. Within the business segments, advertising is the cornerstone of this transformation. In 3Q FY26 Walmart Connect accounted for roughly one-third of operating income, and global advertising revenue grew 53%. Meanwhile, the acquisition of VIZIO is expected to further strengthens this ecosystem, extending it into the living room and enabling closed-loop attribution that competitors cannot replicate.

Overall, we view this high-margin revenue as a structural advantage for Walmart as advertising profits allow the company to sustain or even a lower price on core grocery items despite inflationary pressures. This preserves the price gap and supports the 270 million weekly visits required to monetise the ad network effectively. Meanwhile, with the high dense store networking, E-commerce has also evolved where digital sales are now increasingly margin-neutral, supported by over 4,600 stores serving as forward fulfillment nodes. In the latest quarter earnings, we have seen some improvements within the US E-commerce business, with roughly 35% of digital orders being delivered in under three hours. As such, by fulfilling from stores rather than remote centers, Walmart is reducing costs and establishing a more efficient E-commerce model.

Figure 6: Walmart US E-commerce Sales as % of Total Sales

The Structural Fix: Automation and Symbotic

To reconcile high-growth technology ambitions with the realities of low-margin retail, Walmart is undertaking a capital-intensive structural transformation. Through its partnership with Symbotic, we believe Walmart’s regional distribution centers would be retrofitted with AI-powered robotics, which transforming unit economics so that picking an individual E-commerce order is comparable in cost to restocking a store shelf. As of late December 2025, more than 50% of fulfillment center volume is now automated, and over 60% of stores receive freight from automated centers. With that, we view this as a structural tailwind for Walmart in technology transformation that would continue improving the operational productivity and efficiency. At the same time, despite the required higher capital expenditures would constrain near term free cash flow, we see this as a high barrier to entry for competitors.

Low-Margin Mix and Labour Intensity may Cap Growth Upside

Despite all these advances, the core business of Walmart remains unchanged and it’s market dominant scale imposes natural limits on growth. While grocery continues to anchor the business, generating 60% of US sales and providing a defensive moat, this segment is low-margin and high-turnover. We expect the advertising revenue would not be fully offset the drag of a massive grocery business, particularly if food inflation turns to deflation, which would increase the challenge of leveraging fixed costs such as occupancy and labour.

Adding to that, labour intensity could be another constraint due to Walmart’s huge employment of around 2.1 million associates globally, making wages its largest operating expense. Rising labour costs would continue creating persistent SG&A pressure unless productivity gains are significant. As such, we believe the high valuation leaves a little buffer for execution risk in managing this workforce.

Figure 7: Walmart’s SG&A.

Key Upside Catalysts

International Value Unlock: The most underappreciated upside sits outside the US core. A successful monetisation event at Flipkart or PhonePe is expected to materially change the growth profile of the consolidated group. In particular, PhonePe’s recent USD 700 million charge related to tax liabilities for separation implies an IPO is moving from conceptual to executable. Should PhonePe crystallise value in public markets, Walmart’s International segment would contribute to a greater multiple support.

GenAI Efficiency Surprise: Walmart is aggressively integrating Generative AI, with 40% of code now AI-generated. Should this integration delivers SG&A savings, it could translate to a greater operating margins expansion. As such, we see Walmart’s recent collaboration with Google’s Gemini as a hedge on the eventual outcome of the LLM competition, building on its earlier engagement with ChatGPT announced in October.

Key Downside Risks

Our hold rating is underpinned by two critical risk factors, which suggest the risk-reward profile is skewed to the downside at current levels of $127.71 (as of writing, 3 February 2026). First, valuation asymmetry is a concern, we believe the stock is priced for perfection, any slowdown in the 53% advertising growth rate or friction in the leadership transition from Doug McMillon to John Furner could trigger a potential correction. Second, regulatory headwinds, particularly stemming from Maximum Fair Price legislation under the Inflation Reduction Act effective January 2026, pose a measurable risk. This could reduce growth in the Health and Wellness segment by one to two percentage points, a segment that generated over $62 billion in fiscal year 2025 sales and plays a critical role in driving customer frequency.

Meanwhile, if the current "K-shaped" economic dynamic collapses into a broader recession (which is not our base case), the high-income trade-down benefit may flatten. Simultaneously, low-income weakness could accelerate, forcing deeper "rollbacks" (markdowns) to maintain volumes, in which the presence of 7,400 active rollbacks indicates that pricing pressure is already structurally present.

The Valuation Dilemma: The "Tech-Multiple" Trap

Despite these operational successes, Walmart’s stock currently trades at a Forward PE of approximately 48 times (as of writing, 3 February 2026), a significant premium to its 10-year historical average of 22.5 times. The market appears to value Walmart more like a high-growth software company than a consumer staple with a massive physical footprint. We believe the current valuation fully reflects the realisation of the bull case, including the scaling of advertising and flawless execution of the supply chain overhaul. At the same time, it underestimates the saturation of the low-margin grocery business, which still accounts for around 60% of US sales, regardless of the growth trajectory of the advertising business.

Key Takeaway - “HOLD” Rating, with a Target Price of $126.00

Walmart has successfully navigated the most difficult transition in modern retail history, emerging as a true omni-channel peer. The strategic pillars of automation, advertising, and membership are solid and provide a credible roadmap for margin expansion.

However, current valuation remains a concern for us. The company is currently trading at a 48x Forward PE, with its core retail business growing revenue at 4–5%, which requires a conviction that margins will expand dramatically and flawlessly. While we believe margins will expand under e-commerce, automation, digitalisation, and technology adoption, the current stock price leaves little room for error.

Applying our fair PE of 38x, given the current perfection trap, our target price for Walmart would be USD 126 by FY28. With the limited upside potential of -1.4% compared to the current price of USD 127, we initiate coverage with a HOLD rating. We recommend investors keep Walmart on their watchlist and look to accumulate shares on pullbacks.

Table 3: Walmart’s Valuation

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.