Walmart 1Q FY27 Earnings Update: The flywheel is spinning, same as the fuel bill

On 21 May, Walmart delivered a solid 1Q FY27 result, with revenue rising 5.9% y/y to USD 177.8bn in constant currency (cc), supported by stronger traffic, continued e-commerce expansion and broad-based execution across Walmart US, Sam’s Club and International. On top of stronger revenue growth, EPS came in at USD 0.66, beating both top-line and bottom-line growth, while operating income grew 5.1% y/y to USD 7.5bn, but missed market expectations as the quarter absorbing a meaningful fuel cost headwind.

Overall, we believe the result reinforces Walmart’s ability to keep gaining share in a more selective consumer environment, whereby value, convenience and faster fulfilment continue to pull more trips into the ecosystem. That said, in our initiation report published on 5 February, we flagged Walmart’s valuation as close to perfection at around 48x forward P/E, leaving limited upside to our FY2028 target price of USD126. So far, our neutral call has played out, with the share price falling -6.7% since initiation, reinforcing our earlier views that Walmart’s fundamentals remain strong, but the stock needs cleaner margin delivery and stronger earnings upgrades to justify a higher multiple.

Table 1: Key Financial Results

Metric	1Q FY27	Beat/Miss
Total Revenue	USD 177.8 bil, +5.9% y/y	Beat
Adjusted EPS	USD 0.66, +8.2% y/y	Beat
Operating Income (cc)	USD 7.5 bil, +5.1%	Miss
Gross Margin	24.3%	Miss
WMT US Comp	+4.1%	Beat
Sam’s Club Comp	+3.9%	Beat
Walmart International Sales (cc)	+10.1%	Beat
Global eCommerce	+26%	Beat
Advertising	+37%	Beat
Membership Fees	+17.4%	Beat
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 21 May 2026.

Notably, guidance was the main reason behind the negative share-price reaction. Although Walmart delivered a revenue and earnings beat, management reiterated its FY27 adjusted EPS guidance of USD 2.75–2.85, which fell short of market expectations for an upward revision, particularly as rising fuel costs are creating additional inflationary and margin pressure.

However, we believe the conservative guidance reflects management’s disciplined and measured approach rather than a deterioration in the underlying business, as Walmart is still scaling higher-margin businesses such as advertising, Marketplace, membership and fulfilment services on top of a low-margin retail base, while faster delivery and AI-led customer engagement are strengthening the broader ecosystem.

Table 2: Management Reiterated Guidance for FY27.

Guidance	FY2027	As of 21 May 2026
Net sales growth (cc)	+3.5% to +4.5%	Unchanged
Adjusted operating income growth (cc)	+6.0% to +8.0%	Unchanged
Adjusted EPS	USD 2.75 to USD 2.85	Unchanged
Capex	Around 3.5% of net sales	Unchanged
Source: Walmart, iFAST compilations. Data as of 21 May 2026.

Walmart US: Traffic-led growth remained healthy despite pharmacy drag and fading tax refund support

Walmart US remained the core earnings anchor, with net sales rising 4.5% to USD 117.2bn, where e-commerce contributing around 530bps to comp growth, supported by stronger delivery demand, higher digital penetration, marketplace assortment and membership retention.

At the same time, comparable sales in Walmart US up 4.1%, driven by stronger transaction growth (strongest in six quarters). Yet, ticket growth moderated, partly due to disinflationary grocery environment where management noted like-for-like inflation ran above 1%, showing that Walmart’s comp growth was driven more by higher transaction volume than pricing.

We see this rather positively, as traffic-led comps are a better signal of share gain than inflation-led ticket expansion, especially in a softer consumer backdrop where the K-shaped economy continues to be reflected in consumer behaviour (higher-income consumers continuing to spend while lower-income consumers seek more value-oriented purchases), Walmart is still deliver stronger transaction growth, supporting our view that the company’s EDLP (everyday low price) positioning remains highly relevant across income groups.

Meanwhile, although we noted that part of the robust demand in Walmart US was aided by the tax refund season (generally falls in February), and is expected to fade after the season, the company has now placed 7,200 rollbacks across the assortment, up more than 20% from a year ago and above 6,200 in 4Q FY25. We believe the increasing rollbacks (stronger investment in prices) would reinforce the price leadership, protecting the market share in price-sensitive consumer.

Read more: Walmart Initiation Report.

Within Health & Wellness (9.3% of total Walmart US revenue), pharmacy regulatory headwinds were the main drag, with Maximum Fair Price (MFP), which took effect on 1 January 2026, creating around 100bps of headwind to Walmart US comps, while slower GLP-1 growth also diluted the category’s contribution. That said, while MFP will likely remain a near-term drag on comps, we do not view it as a structural demand issue, as the pressure mainly reflects lower reimbursement per script, rather than weaker pharmacy traffic. In a longer term, we believe Walmart’s EDLP model and lower cost-to-serve should allow it to absorb reimbursement pressure better than standalone pharmacy chains, while strengthening share gains, customer loyalty and trust in value-led healthcare.

Figure 1: Walmart US revenue growth and operating margin

Figure 2: Traffic growth saw a stronger pickup while ticket growth is slowing.

Figure 3: Walmart US revenue breakdown.

Sam’s Club: Membership and traffic continue to strengthen the club model

Sam’s Club delivered a healthy quarter, with comps increase 3.9% y/y excluding fuel, supported by strong transaction growth of 6.2%, the strongest across Walmart’s segments. Overall, we see this positively, as elevated fuel prices and value-seeking behaviour continue to push consumers into the club format, with CFO David Rainey noting that Sam’s fuel gallons sold rising 12% in May despite a 5% industry decline.

That being said, similar to Walmart US, we believe the -2.2% decline in average ticket overall suggesting that consumers are visiting more frequently but still managing basket size carefully, and that reflects increasingly budget-conscious behaviour amid elevated fuel prices.

Figure 4: Despite a strongest traffic growth across business segments, Sam’s club saw a decline in ticket growth.

Walmart International: Stronger execution and platform optionality outside the US

International was one of the highlights of the quarter, with cc sales grew 10.1% y/y and operating income growing 10.2% y/y, supported by broad-based strength across Walmex, China and India. Overall, we see this positively, as Walmart is not only growing internationally, but also improving the quality of growth through better e-commerce economics, particularly in Asia where scale, density and faster fulfilment are starting to support operating leverage.

In 1Q FY27, Walmart International E-commerce grew 27% and reached 30% penetration, with India’s Flipkart and China Walmart remain the key drivers. Flipkart’s micro-fulfilment network now covers more than 800 locations and delivers in under 13 minutes on average across over 30 cities, while China delivered more than half a billion units in Q1, with 75% arriving within one hour. All these has strengthen our view that Walmart International is executing the same store-and-fulfilment flywheel well, whereby faster delivery, higher order density and stronger digital penetration are beginning to support better operating leverage outside the US.

Figure 5: Walmart International is still expanding

Figure 6: Higher E-commerce penetration in Walmex and Walmart China driven by store-fulfilled delivery.

Commerce solutions flywheel is still spinning

As highlighted in our initiation report, Walmart’s flywheel is increasingly built around e-commerce expansion and higher-margin commerce solutions, rather than physical retail sales alone. In 1Q FY27, this transformation continued to gain traction, with global e-commerce sales increasing 26%, led by store-fulfilled pickup and delivery, marketplace growth and stronger digital engagement. On top of that, US Marketplace net sales grew nearly 50%, while sellers increased advertising spend by more than 50% and saw corresponding sales lifts. We believe this reinforces the flywheel effect, whereby Marketplace growth expands assortment, attracts seller advertising spend, funds price investment, drives traffic and ultimately brings more sellers into the ecosystem.

The higher-margin revenue streams also continued to scale well, where we see the Global advertising revenue grew 37%, including 36% growth in Walmart US advertising, while membership fee revenue rose 17.4% with strong Walmart+ net additions. Meanwhile, Sparky, Walmart’s AI shopping agent, saw weekly active users more than double and units purchased through the platform grow 4x sequentially, as usage broadened from general merchandise discovery into everyday essentials such as meal planning and auto-replenishment. Together, advertising, membership and commerce solutions now represent roughly one-third of total operating income, which we see as an important shift in Walmart’s earnings quality.

Overall, the quarter reinforced our view that Walmart’s higher-margin commerce solutions are becoming increasingly important to the group’s long-term earnings profile, as these businesses continue improving the revenue mix, deepen customer engagement and create incremental margin opportunities beyond the core retail model.

Rising fuel bill clouded the business margin

As aforementioned, higher fuel costs created a USD 175 million impact, equivalent to around 250bps of operating income growth pressure, which diluted the earnings flow-through from stronger sales.

Although Walmart’s gross profit margin still expanded by 6bps, and Walmart US gross profit margin improved by 29bps due to stronger merchandise category mix, we believe margin expansion could face pressure in the coming quarters as the tax refund tailwind fades and lower-income consumers become more value-seeking under the K-shaped economy.

Figure 7: Rising fuel cost has eaten into business margin.

Walmart remains advantaged amid K-shaped economy

In the current macro backdrop, we note that US retailers are becoming more competitive in grocery and value-led categories, as consumer behaviour remains shaped by a K-shaped economy. Among competitors, Target’s recent earning results show its turnaround is gaining traction in discretionary categories and same-day delivery, while Costco continues to benefit from strong traffic and membership loyalty. However, we are not seeing these as direct threats to Walmart’s core advantages in grocery, essentials, price leadership and fulfilment density.

Meanwhile, pricing intensity is also rising, with Kroger preparing to cut prices on thousands of items to regain share from Walmart, Costco and Aldi. We believe this would keep grocery margins under pressure across the industry, even though Walmart remains better positioned to defend share through scale, EDLP execution, rollbacks, store density and supplier funding. And we note that the key risk is not on rising competition, but whether pricing pressure limits the pace of Walmart’s margin expansion.

As aforementioned, Walmart’s key advantage is its ability to fund price investment through higher-margin commerce solutions, where advertising, membership and marketplace now contribute roughly one-third of operating income, giving Walmart a margin cushion that most traditional grocers do not have. As such, while rollbacks and higher pricing intensity may pressure near-term merchandise margins, we believe Walmart remains one of the best-positioned retailers in a prolonged value-led environment, as its alternative profit pools allow it to defend price leadership while still monetising traffic through higher-margin revenue streams.

Figure 8: US consumer sentiment fell to record low amid rising inflation pressure. 

Source: UoM, Bloomberg Finance L.P., iFAST compilations. Data as of 22 May 2026.

Reiterating our neutral view

We reiterate our HOLD rating on Walmart with a target price of USD 132. Although we remain constructive on Walmart’s long-term margin transition, e-commerce expansion and higher-margin commerce solutions, the stock is currently trading at 41x forward P/E, while management’s FY27 revenue growth guidance remains at 3.5–4.5%. In our view, the current valuation requires a high degree of confidence that margins can expand meaningfully and consistently, which may be difficult in the near term as elevated fuel costs, price investment and healthcare expenses continue to dilute operating leverage. As such, we believe the current share price leaves limited room for execution risk.

Applying our fair P/E of 38x, we imply an upside of 12%, with target price of USD 132 by FY28. We therefore reiterate our HOLD rating and recommend investors to keep Walmart on their watchlist, with a better entry point likely on share price pullbacks.

Table 3: Valuation Table

In Millions of USD	FY 2025	FY 2026 E	FY 2027 E	FY 2028 E
Revenue	713,163.00	749,221.11	783,065.77	820,204.42
Growth %, YoY	5.10%	5.06%	4.52%	4.74%
EPS	2.57	2.90	3.25	3.50
Growth %, YoY	2.39%	12.94%	12.04%	7.51%
Implied P/E	46.36	40.65	36.29	33.75
Fair P/E				38
Upside Potential				12%
Target Price				132
Source: Bloomberg Finance L.P., iFAST compilations. Data as of 21 May 2026.

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.