Walmart Inc.

01 — Executive summary$713.2 billion of revenue, 4.2% of it left over, and a 39-times multiple

Walmart Inc. closed its fiscal year on 31 January 2026 having sold $706.4 billion of merchandise and collected $713.2 billion of total revenue, 4.7% more than the prior year. It converted that into $29.8 billion of operating income and $21.9 billion of net income. The operating margin was 4.22%. Eight years ago, in fiscal 2019, the operating margin was 4.27%. In between, revenue grew by $199 billion — roughly the entire annual revenue of Home Depot — and the margin moved by five basis points.

That is the central fact of this report. Walmart is the most efficient distribution machine ever built, and it has spent a decade proving that distribution scale does not produce operating leverage. What it produces is capital leverage — a $713 billion revenue base that can be turned, very slowly, into higher-margin adjacent businesses: advertising, marketplace commissions, membership fees, fulfillment services, financial services, data. Those businesses are real, they are growing faster than anything else in the company, and in fiscal 2026 they were worth about $6.4 billion of advertising revenue and $6.8 billion of membership and other income, or roughly 1.9% of net sales combined.

The second half of fiscal 2027 has been genuinely strong at the operating level. In the quarter ended 31 July 2026, total revenue rose 5.9% to $187.9 billion, global e-commerce grew 23%, global advertising grew 38%, membership income grew 17%, and marketplace net sales in the United States grew more than 50%. Store-fulfilled delivery grew 40% and now accounts for a meaningful share of a digital business that is 23% of Walmart U.S. net sales. Reported operating income rose 28.8%.

It is at this point that a reader should slow down, because that 28.8% is the most misleading number in Walmart's recent disclosure. The quarter included nearly $2.9 billion of refunds of tariffs collected under the International Emergency Economic Powers Act — money the company had already paid, returned to it after the tariffs were voided. Strip that out, put the comparison on a constant-currency basis, and operating income grew 17.4%. Still excellent. Roughly 40% less excellent than the headline. Management was explicit about this on the call, and the company's own release shows both numbers side by side. Our point is not that Walmart misled anyone; it is that the market's first reaction to a 28.8% print is not the reaction the number deserves.

Against all of that stands the price. At $108.16 the shares trade at 39.2 times trailing earnings and 36.1 times forward earnings, on a 0.92% dividend yield, with a market capitalisation of $858 billion. The ten-year Treasury yields 5.31%. Walmart's earnings yield — the inverse of that price-to-earnings ratio — is 2.55%, less than half the risk-free rate. For the shares to work from here, an investor has to believe either that earnings will compound fast enough to justify the multiple, or that the multiple will stay where it is. Revenue has compounded at 4.8% a year for eight years. Adjusted earnings per share have compounded at roughly 7%.

We rate the shares Neutral with a twelve-month target of $114, which is 37 times our fiscal 2028 adjusted EPS estimate of $3.08. That is a 5.4% price return and a 6.3% total return including the dividend. It is also, we should be clear, a target that sits 10% below the $126.78 average of the 43 analysts who cover the stock, most of whom rate it Buy. We are not making a case that Walmart is a bad business. It is one of the best businesses in the world. We are making the narrower case that the price already reflects the good news, and that the good news — a genuine mix shift into higher-margin services — is arriving on a base so large that it takes years to move consolidated margin.

02 — Company & business modelThree segments, 10,900 stores, and a business that is now half digital infrastructure

Walmart operates through three reportable segments, and the boundaries between them matter more than the labels suggest. Walmart U.S. is the American supercentre, neighbourhood market and small-format business, plus walmart.com and the associated delivery, marketplace, advertising and financial-services operations that sit on top of it. Walmart International is the store and e-commerce business outside the United States, organised around Mexico and Central America (Walmex), Canada, China, India (Flipkart and PhonePe), Chile and Africa. Sam's Club U.S. is the membership warehouse club, 600-odd clubs operating a fundamentally different economic model.

The company employed approximately 2.1 million associates at the fiscal year end, making it the largest private employer in the United States and one of the largest in the world. It operated roughly 10,900 stores and clubs globally. Those two facts — the headcount and the store count — are the reason the operating margin is 4% and not 14%. Walmart runs a business where a 1% wage-rate change is a $2 billion annual expense and a 10-basis-point change in shrink is a $700 million swing.

The business model has three layers, and it is worth being precise about how they interact, because almost every mistake in Walmart analysis comes from conflating them.

The first layer is the store. It is a fixed-cost distribution asset that earns a gross margin in the mid-twenties and pays for itself through volume. This layer is mature. U.S. comparable sales have grown between 2.6% and 4.6% for the last five quarters, and roughly half of that growth now comes from digital orders fulfilled by the store rather than from more people walking in. The store layer is not dying — Walmart has continued to open and remodel supercentres, and management said in the fiscal 2026 annual report that store investment remains a priority — but it is no longer where the incremental profit comes from.

The second layer is the network. Walmart has spent roughly $26.6 billion of capital in fiscal 2026 and expects to spend around 4% of net sales, roughly $29 billion, in fiscal 2027, on automation, remodels and the delivery infrastructure. The payoff is speed: 35% of store-fulfilled orders delivered in under three hours as of the third quarter of fiscal 2026, with sales through those expedited channels growing nearly 70%. Speed converts a store into a fulfillment node and converts a grocery trip into a delivery subscription. This is the layer where Walmart is genuinely beating Amazon, because Amazon has to build the last mile and Walmart already owns it, 4,600 times over, in the places Americans live.

The third layer is the toll booth. Once you have the store traffic and the digital relationship, you can sell access to it. That is advertising (Walmart Connect), marketplace commissions and fulfillment services, membership fees (Walmart+ and Sam's Club), and financial services. These are capital-light, high-margin, and growing three to ten times faster than the core. They are also, today, small. Advertising was $6.4 billion in fiscal 2026, membership and other income $6.75 billion, and Walmart does not separately disclose marketplace revenue at all.

The reason the segment structure matters is that the toll booth is not a segment. Advertising sits inside Walmart U.S. and International; membership income sits inside all three segments and in corporate. So the reported segment margins understate the progress: Walmart U.S. margin improved 5 basis points in fiscal 2026 to 5.21% precisely because advertising and membership income grew faster than the cost of running stores, while International margin fell 60 basis points because its growth was concentrated in lower-margin e-commerce. Reading the segments without reading the mix shift produces the wrong conclusion.

A note on how Walmart reports, because it changes how the numbers should be read. The company reports net sales and total revenues separately; the difference is membership and other income, which was $6.75 billion in fiscal 2026. It reports GAAP and adjusted figures, where the adjustments are equity investment gains and losses, a PhonePe share-based compensation charge, certain legal matters, and business reorganisation costs. And it reports constant currency, which matters enormously for International. In fiscal 2026, International net sales grew 7.0% as reported and 9.3% in constant currency. Any comparison that mixes the bases is wrong.

03 — The financial recordEight years, $199 billion of new revenue, and five basis points of margin

The table below is the whole investment case in eight rows. Walmart grew revenue from $514 billion in fiscal 2019 to $713 billion in fiscal 2026, a compound annual rate of 4.8%. Over the same period, operating income grew from $22.0 billion to $29.8 billion, a compound annual rate of 4.4%. Operating margin went from 4.27% to 4.22%.

There is nothing wrong with a 4.8% revenue compounder. Most of the S&P 500 would take it. The question a valuation has to answer is what multiple a 4.8% revenue compounder with a 4.2% margin deserves, and the answer depends entirely on what happens to the mix.

Look at the line in the upper panel of the chart. It is not flat — it oscillates between 3.34% and 4.53%, and the oscillation is informative. Fiscal 2023 was the trough at 3.34%, driven by the combination of inflation in cost of goods that could not be fully passed through, elevated shrink, and the costs of the opioid litigation settlements. Fiscal 2024 was the rebound at 4.17%, and fiscal 2025 the peak at 4.31%, as those pressures reversed and advertising and membership income began to scale. Fiscal 2026 gave back 13 basis points to 4.18%.

That last move deserves attention, because it happened in a year when every higher-margin business grew double digits. Advertising grew 46%. Membership income grew 15% globally in the fourth quarter. E-commerce grew 24%. If the mix shift is as powerful as the bull case requires, fiscal 2026 was the year the margin should have expanded, and it contracted instead. The explanation is that the growth was paid for: Walmart cut prices, absorbed tariff costs, took a hit in pharmacy reimbursement, and invested in wages and delivery. Those are all defensible decisions. They are also all expenses that arrive before the revenue they are meant to produce.

The chart above shows the divergence directly. In six of the last seven years Walmart grew operating income faster than revenue or slower than revenue, and the gap has been large in both directions: down 21.3% in fiscal 2023, up 32.2% in fiscal 2024. Fiscal 2026 delivered a negative gap of 3.1 percentage points — the widest since fiscal 2023. The pattern is characteristic of a business where operating income is a small residual of a very large revenue number: a 10-basis-point swing in margin is a 2.4% swing in profit, and small changes in mix, cost inflation or one-off charges dominate the reported growth rate.

This is also why Walmart's earnings are more volatile than its revenue makes them look, and why the multiple should be considered carefully. A company whose earnings move 20% in a year on a 4% revenue change is not a bond proxy, however stable the stores feel. The stability is in the revenue; the volatility is in the residual.

Two structural features of the financial record deserve flagging before we go segment by segment.

The first is the rising capital requirement. Capital expenditure was $13.1 billion in fiscal 2022 and $26.6 billion in fiscal 2026 — more than doubled in four years, against revenue growth of 23%. Management guides approximately 4.0% of net sales for fiscal 2027. Walmart is therefore converting a larger and larger share of its operating cash flow into fixed assets, and the return on that capital arrives over years, not quarters.

The second is the buyback. Walmart repurchased $8.1 billion of stock in fiscal 2026 and, in February 2026, announced a new $30 billion authorisation replacing the prior $20 billion programme. Against a market capitalisation of $858 billion, a $30 billion authorisation is 3.5% of the company. It is not nothing, but it is not the earnings-per-share engine that buybacks are at smaller companies: at 36 times forward earnings, Walmart is buying back stock at an earnings yield of 2.8%, which is below the yield on the debt it could issue to fund it.

04 — Segment: Walmart U.S.68% of the revenue, 77% of the profit, and the only segment gaining margin

Walmart U.S. generated $482.98 billion of net sales in fiscal 2026, 4.4% more than the prior year, and $25.16 billion of operating income, 5.3% more. The segment margin was 5.21%, up five basis points. It is 68.4% of company net sales and 76.9% of segment operating income.

Walmart U.S. is where the investment case lives, and it is worth understanding why the margin is rising here and nowhere else. Three things are happening simultaneously.

First, advertising is scaling inside the segment. Walmart Connect, the U.S. retail-media business, grew 41% in the fourth quarter of fiscal 2026 and 43% in the second quarter of fiscal 2027 excluding VIZIO. Retail media has near-100% incremental margin: the audience is the existing shopper, the inventory is the existing digital real estate, and the only real cost is the ad server and the sales force. Every dollar of Walmart Connect revenue that lands inside Walmart U.S. lifts the segment margin by construction.

Second, membership income is growing. Walmart+ membership income grew at a double-digit pace through fiscal 2026, and membership and other income for Walmart U.S. was $750 million in the second quarter of fiscal 2027, up 15.6%. Membership fees are collected up front and recognised over the year, so they are, in accounting terms, the highest-quality revenue Walmart has.

Third, the delivery network is beginning to produce operating leverage. Store-fulfilled delivery grew 40% in the second quarter of fiscal 2027. Because the marginal delivery is dispatched from a store that already exists and is already staffed, the incremental cost to serve is far below the cost of building dedicated fulfillment capacity. That is the mechanism by which Walmart's digital business can eventually be margin-accretive rather than dilutive, and it is the single most important thing to watch in the segment.

Against those three tailwinds, the headwinds are large and were visible in the most recent quarter. Walmart U.S. comparable sales grew 2.6% in the second quarter of fiscal 2027, down from 4.6% in the fourth quarter of fiscal 2026 and 4.5% in the third. The company attributed roughly 125 basis points of that to the Maximum Fair Pricing provisions affecting pharmacy reimbursement; excluding the wellness category, U.S. comps were 3.4%. Pharmacy is a traffic category — a customer who fills a prescription at Walmart is a customer who walks through the store — so a reimbursement squeeze in pharmacy is not only a revenue issue but a footfall issue.

The segment's other vulnerability is that its growth is now heavily digital. E-commerce grew 24% in the second quarter of fiscal 2027 and is approximately 23% of Walmart U.S. net sales. A quarter of the segment is growing at 24% and three quarters at roughly 1-2%. The blended comp is therefore levered to digital in a way it never was, which is good while digital grows and structurally exposed if it does not.

05 — Segment: Walmart International19% of the revenue, and the fastest-growing part of the company

Walmart International generated $130.42 billion of net sales in fiscal 2026, 7.0% more than the prior year and 9.3% more in constant currency. Operating income was $5.10 billion, down 7.2% as reported but up 8.0% in constant currency and adjusted. The segment margin fell 60 basis points to 3.91%.

International is the most interesting segment in the company and the hardest to analyse, because it contains at least four genuinely different businesses.

Walmex, the Mexican and Central American business, is the largest and most mature. It is a genuine omnichannel leader in its market, and management has repeatedly cited strong relative performance in the Sam's Club format in Mexico.

Flipkart is the strategic asset. Walmart acquired a controlling stake in 2018 for $16 billion, and Flipkart is now India's largest e-commerce platform. It completed a formal re-domiciliation from Singapore to India in March 2026, which is the standard precondition for an Indian listing, and the company has been reported to be in early talks with investment banks about a potential 2026-27 IPO. Flipkart's Big Billion Days event is a genuine scale demonstration: management disclosed that at peak the platform delivered 87 orders per second with the fastest delivery in about three minutes.

PhonePe is the payments business spun out of Flipkart, and it is where Walmart has taken its largest accounting charge — the PhonePe share-based compensation expense ran through the corporate line in fiscal 2026 and is the single largest reason the corporate segment loss widened to $2.9 billion. A PhonePe listing has been reported as a pure offer-for-sale structure, with Walmart and other shareholders selling down rather than the company raising primary capital.

China is smaller but strategically important, because Sam's Club China is the best-performing part of the international portfolio on a per-store basis. Management reported that Sam's Club China hit record highs in member counts in the second quarter of fiscal 2027, and that membership income growth across the enterprise was led by 34% growth in International in the third quarter of fiscal 2026 primarily because of Sam's Club China.

The chart above is the most important chart in this section and possibly in the report. Constant- currency net sales growth has been remarkably steady — 11.4%, 7.5%, 10.1%, 7.9% across four quarters. Constant-currency operating income growth has collapsed — 16.9%, 26.5%, 10.2%, 5.7%. International is growing revenue consistently and converting progressively less of it into profit.

There are two readings of that. The benign reading is that the profit deceleration is a deliberate investment: Flipkart is spending to build out logistics and payment infrastructure ahead of a listing, and e-commerce economics in emerging markets require scale before they produce margin. The less benign reading is that International's growth is coming from lower-margin channels and that the mix is deteriorating in a way that will persist.

The evidence points slightly toward the benign reading. Management specifically attributed the second-quarter operating income growth to "eCommerce economics improvements led by China, India, and Canada" — that is, the digital businesses are improving, not deteriorating. And the third-quarter fiscal 2026 adjusted constant-currency operating income growth of 16.9% was accompanied by an explicit statement that business mix, improved e-commerce economics and membership income drove it. But the trend in the last two quarters is unambiguous and an investor should not assume it reverses on its own.

The valuation question hiding in International is whether Flipkart and PhonePe are worth more separately than the market currently ascribes to them inside Walmart. Flipkart's last private valuation was in the $35-40 billion range; PhonePe's has been reported in the $12-15 billion range. Together those would be perhaps 6% of Walmart's market capitalisation for businesses that contribute a fraction of that in revenue. A successful listing of either would be a genuine catalyst — and, notably, a source of cash that could fund buybacks at a 2.8% earnings yield, which would be accretive to nothing except the optics.

06 — Segment: Sam's Club U.S.13% of the revenue, 7.5% of the profit, and a 2.6% margin

Sam's Club U.S. generated $93.02 billion of net sales in fiscal 2026, 3.1% more than the prior year, and $2.44 billion of operating income, 1.6% more. The segment margin was 2.63%, down three basis points. Comparable sales excluding fuel were 5.1% for the year and 4.4% in the second quarter of fiscal 2027 — better than Walmart U.S. in the most recent quarter.

Sam's Club is a structurally different business and should be valued differently. A warehouse club sells merchandise at close to cost and makes its money on the membership fee. That means the merchandise gross margin is deliberately thin, the operating margin is structurally low, and the real economics are in membership renewal rates and member count growth. A 2.6% operating margin in a club is not a failure; it is the design.

What is genuinely worth watching is whether Sam's Club is closing the gap with Costco. On the evidence available, it is not. Costco's operating margin is structurally similar but its comparable sales have historically run a point or two ahead, and its membership renewal rate in the United States and Canada has been consistently above 90%. Walmart does not disclose Sam's Club renewal rates, which is itself informative.

The margin chart above tells the story of fiscal 2026 across the company in one image. Walmart U.S. improved 5 basis points. Sam's Club was essentially flat, down 3. International gave back 60 basis points. Consolidated margin narrowed 13 basis points to 4.22%. The only segment gaining margin is the one where advertising and membership income are largest relative to the cost base — which is exactly what the mix-shift thesis predicts, and also exactly why the thesis is slow: Walmart U.S. is 68% of revenue, so a 5-basis-point improvement there is 3 basis points of consolidated margin.

There is one more thing to note about Sam's Club, and it is a genuine positive. Membership income for the segment grew 7.1% in the third quarter of fiscal 2026, and management reported steady growth in member counts and renewal rates. Sam's Club e-commerce grew 26% in the second quarter of fiscal 2027, the fastest of any segment, driven by club-fulfilled delivery and Scan & Go adoption. The club is doing the right things. It is simply too small to move the consolidated numbers, and the multiple is set on the consolidated numbers.

07 — The growth engine: deliveryFifteen quarters of double-digit digital growth, built on 4,600 warehouses that already existed

Walmart's digital business is the most under-appreciated operating achievement in American retail, and also the most over-claimed. It is worth separating the two.

The under-appreciated part is the scale and consistency. Global e-commerce grew 23% in the second quarter of fiscal 2027, the fifteenth consecutive quarter of double-digit growth. Walmart U.S. e-commerce is now approximately 23% of segment net sales, a record. Store-fulfilled delivery grew 40% in the quarter. As of the third quarter of fiscal 2026, approximately 35% of store-fulfilled orders were delivered in under three hours, and sales through those expedited channels grew nearly 70%. Those are not the numbers of a legacy retailer dabbling in e-commerce; they are the numbers of a business that has solved the hardest problem in retail, which is the last mile, by using assets it already owned.

The over-claimed part is the implication that this makes Walmart an e-commerce company. It does not, in the way the market means it. Walmart's digital growth is overwhelmingly grocery — pickup and delivery of food and consumables, fulfilled from a store that was already there, at a gross margin far below Amazon's. The 23% of sales that are digital carry a materially lower gross margin than the 77% that are in-store, because the store transaction has no picking cost, no delivery cost and no packaging cost. Digital growth at Walmart is revenue-accretive and margin-dilutive, and it will be for as long as the last mile costs more than the shopping trip.

That is not a criticism. It is the correct frame for evaluating whether the digital business is working. The question is not whether digital grows — it will — but whether the incremental cost to serve falls faster than the mix penalty. Three things suggest it can: store-fulfilled delivery is cheaper per order than fulfillment-centre delivery; automation has passed 50% of e-commerce fulfillment centre volume and 60% of stores now receive some freight from automated distribution centres; and density improves the economics of every route. Three things suggest it may not: wages are rising, delivery is labour-intensive at the last step, and the customer has been trained to expect free delivery above a threshold.

The comparable-sales chart above is the honest counterweight. Walmart U.S. comps have halved in two quarters, from 4.6% in the fourth quarter of fiscal 2026 to 2.6% in the second quarter of fiscal 2027. Roughly 125 basis points of the decline is pharmacy reimbursement, and the company reported 3.4% comps excluding wellness. But a 3.4% underlying comp is still a deceleration from 4.6%, and it is happening while e-commerce grows 24%. Which means the store-only comp — the 77% of the segment that is not digital — is running close to flat.

Sam's Club, meanwhile, accelerated to 4.4%. The pattern is worth noting: the segment with the smaller digital mix and the stronger membership model is now producing the better comparable-sales number. That is a reminder that in retail, the membership and frequency economics matter at least as much as the channel economics.

08 — Walmart Connect and advertising$6.4 billion, growing 46%, and still 0.9% of net sales

Walmart's advertising business is the best thing in the company and the most oversold. Both statements are true, and holding them at the same time is the whole analytical task.

The numbers are excellent. Global advertising reached nearly $6.4 billion in fiscal 2026, up 46%, after growing 29% in fiscal 2025 and 27% in fiscal 2024. In the second quarter of fiscal 2027 global advertising grew a further 38%, with Walmart Connect in the U.S. up 43% excluding VIZIO, and International advertising up 20% led by Flipkart Ads. In the fourth quarter of fiscal 2026, Walmart Connect grew 41%.

Retail media works because the advertiser is buying something no other channel can sell: a purchase, attributable in the same session. Walmart knows what you bought last week, in which store, and whether you substituted. That closes the loop that Google and Meta have spent twenty years approximating with probabilistic models, and it is why retail media has grown from a novelty to a meaningful industry in under a decade.

The problem is arithmetic. At $6.4 billion against $706 billion of net sales, advertising is 0.9% of revenue. Suppose Walmart doubles advertising again over the next three years — a heroic assumption, given it just decelerated from 46% to 38% growth. That would add $6.4 billion of near-100%-margin revenue. Against fiscal 2026 net sales of $706 billion, it would lift consolidated operating margin by roughly 90 basis points, from 4.22% to about 5.1%. That is a real and meaningful improvement. It is also the entire three- year contribution of the highest-margin business the company owns, and it leaves Walmart still operating at a margin below where it was in fiscal 2022.

There is a second issue, and it is the one the bear case rests on. Advertising growth is decelerating — 46% in fiscal 2026, 38% in the most recent quarter. Some of that is the law of large numbers and some of it is the market. Retail media is now a competitive category with Amazon Advertising, Instacart, Kroger Precision Marketing, Target Roundel and a dozen others all selling the same shopper data to the same consumer-packaged-goods advertisers. The budgets are finite. If Walmart Connect settles into a 15-20% growth rate, it will still be an excellent business, and it will be an excellent business that takes six years rather than three to add 90 basis points of margin.

The VIZIO acquisition complicates the reporting, and it is worth noting that Walmart now presents Walmart Connect growth both including and excluding VIZIO, because the connected-television business grows on a different curve. When a company starts showing you two versions of the same metric, the version that flatters is usually the one it leads with. We use the ex-VIZIO figure.

09 — Membership and the flywheelThirty million paying members, and $6.8 billion of the highest-quality revenue Walmart has

Membership is the most under-discussed part of Walmart's mix shift and, in our view, the most durable. Membership and other income was $6.75 billion in fiscal 2026 — 0.96% of net sales — and grew 19.0% in the first half of fiscal 2027.

Walmart+ reached approximately 28.4 million paid members in January 2026, growing roughly 12% year over year, and Morgan Stanley survey data reported in May 2026 put the figure at a record 30.7 million. Sam's Club U.S. membership income grew 7.1% in the third quarter of fiscal 2026, with steady growth in member counts and renewal rates. Sam's Club China hit record highs in member counts in the second quarter of fiscal 2027.

Three things make membership revenue qualitatively better than merchandise revenue.

It is paid in advance. A membership fee is cash today and revenue over twelve months, which is a free source of working capital and a genuine cash-flow advantage in a business that carries $61.6 billion of inventory.

It is high margin. The incremental cost of an additional member is close to zero once the delivery infrastructure exists. This is why Costco can run a 2.6%-type merchandise margin and still earn a respectable return: the fee is the profit.

It is behaviour-changing. A member who has paid $98 or $49 a year has an incentive to concentrate spend, which raises basket size, frequency and the value of the advertising inventory. Membership is not a revenue line so much as a mechanism for increasing the value of every other revenue line.

The caveat is the fourth quarter of fiscal 2026, when membership and other income grew 1.1%. A single quarter is not a trend, and the first half of fiscal 2027 rebounded to 19.0%. But the fourth-quarter number is the kind of data point that deserves to be on the watch list rather than explained away, particularly in a company trading at 36 times forward earnings where the multiple depends on the mix shift continuing.

10 — Marketplace and fulfillmentThe business Walmart does not report, growing more than 50%

Walmart does not disclose marketplace revenue, which is unusual for a business it describes as growing more than 50%. What the company does say is that marketplace net sales in Walmart U.S. grew more than 50% in the second quarter of fiscal 2027, that approximately 50% of the marketplace business flowed through fulfillment services, that the marketplace is expanding into markets outside the United States, and that Walmart.com shipping was expanded to Mexico during the quarter.

The strategic logic is straightforward and mirrors Amazon's. A marketplace adds selection without adding inventory. The seller carries the working capital, Walmart takes a commission, and the incremental margin is high because the infrastructure is already built. When the seller also buys fulfillment services, Walmart captures a second fee on the same order and fills the delivery network that the first-party business paid for. That is why the disclosure that half of marketplace volume flows through fulfillment services is more important than the 50% growth rate.

The execution question is quality. Marketplaces have a well-documented failure mode: as seller count grows, counterfeit goods, misleading listings and inconsistent service degrade the trust that the first-party business spent fifty years building. Walmart's brand is built on the proposition that what is on the shelf is what it says it is. Amazon has spent a decade and enormous sums on this problem and has not fully solved it. Walmart's marketplace is much smaller and its controls are newer; the risk of a trust incident is real, and the cost of one would fall on the segment that produces 77% of the profit.

11 — Grocery and the consumerWalmart is the largest grocer in America, and that is now a technology business

More than half of Walmart U.S. net sales are grocery. That single fact explains the margin, the comps, the traffic and the valuation. It also explains why the company's results are the most closely watched consumer data point in the market: roughly 90% of the U.S. population shops at Walmart in a given year, which makes the company a real-time census of the American household.

The chart above shows the profit concentration. Walmart U.S. is 68.4% of net sales and 76.9% of the $32.7 billion of segment operating income. Sam's Club is 13.2% of sales and 7.5% of profit. International is 18.5% of sales and 15.6% of profit. This is a company whose economics are decided in one segment, in one country, in one category — and the category is food, which is the lowest- margin, highest-frequency, most deflationary merchandise in retail.

Grocery is strategically attractive precisely because it is unglamorous. Food is non-discretionary, purchased weekly, resistant to e-commerce substitution at the low end of the market, and it is the category where Walmart's price advantage is most visible and most defensible. When the company takes share across income cohorts — and it reported doing so in the second quarter of fiscal 2027, particularly among households earning more than $100,000 — grocery is the entry point. Once the household is buying food at Walmart, the general-merchandise basket follows.

The consumer environment, though, is not uniformly supportive, and the company has been candid about it. Management has described the pattern as a K-shaped consumer: spending among the highest earners has "gapped out" relative to lower-income cohorts, and the company has said it sees pressure on its lowest-income customers. In the fourth quarter of fiscal 2026, almost all of the mid-single-digit growth in the fashion category came from households earning more than $100,000.

That pattern cuts both ways for the investment case. Trade-down is a tailwind: when a household earning $60,000 starts buying groceries at Walmart instead of a regional grocer, Walmart gains a customer who may stay for a decade. But a weak low-income consumer is a headwind on the general- merchandise basket, which carries the margin. The most recent quarter showed both: market-share gains across income cohorts, and comps decelerating to 2.6%. Walmart is gaining customers and losing basket size, which is a perfectly coherent description of a value-seeking consumer.

12 — The quarterly recordSix quarters, a 5-7% revenue trend, and one quarter that needs to be read twice

Quarterly results in a business this large are mostly noise around a stable trend, but the last six quarters contain the two most important data points in this report: the deceleration in comparable sales and the tariff refund.

Revenue growth has been between 4.8% and 7.3% for five consecutive quarters, with the first quarter of fiscal 2026 at 2.5% depressed by a calendar shift against a leap-year comparative. There is nothing in this series that suggests a business in trouble, and nothing that suggests a business accelerating. It is a 5-7% revenue compounder with a seasonal peak in the fourth quarter at $190.7 billion.

The chart above is the one to study. In the second quarter of fiscal 2027, reported operating income grew 28.8% and adjusted constant-currency operating income grew 17.4%. The gap is approximately 750 basis points of growth that came from the IEEPA tariff refunds — nearly $2.9 billion received in the quarter, which management said it prioritised investing in price, delivering more than 11,000 rollbacks during the period.

We think management handled this correctly: it disclosed the refund separately, quantified the benefit, and explicitly guided investors to evaluate the second and third quarters together because of the timing shift of Flipkart's Big Billion Days. That is good disclosure. But the market's first reaction to a 28.8% operating income print is a re-rating, and the number does not deserve one. The underlying business grew operating income 17.4% in constant currency on 5.0% constant-currency revenue growth — which is, to be fair, genuine operating leverage of a kind Walmart has not produced in years. It is just not 28.8%.

The same caveat applies in reverse to the first quarter, when reported operating income grew 5.0% and adjusted constant-currency operating income grew 5.1%. Those are honest numbers. Over the two quarters, adjusted constant-currency operating income growth averaged roughly 11%, on revenue growth of about 6%. That is the run rate an investor should underwrite.

13 — Margins and the mix shiftHow much margin can 1.9% of revenue actually produce?

The bull case for Walmart is, at bottom, a margin case. The argument is that a company with a 4.2% operating margin and $713 billion of revenue has enormous operating leverage available from even a small shift in the mix toward advertising, membership, marketplace and fulfillment services. We think that argument is correct in direction and badly overstated in magnitude, and this section is the arithmetic.

Start with the two high-margin lines Walmart actually discloses. Advertising was $6.4 billion in fiscal 2026, growing 46%. Membership and other income was $6.75 billion, growing 4.7% for the full year and 19.0% in the first half of fiscal 2027. Together, $13.15 billion of revenue on $706.4 billion of net sales, or 1.86%.

Now make the most generous defensible assumptions. Assume advertising has a 90% incremental operating margin — generous, because retail media carries real technology and sales costs. Assume membership income is 100% incremental, which is close to true once the delivery network exists. Assume marketplace commissions and fulfillment services, which Walmart does not disclose, add another $4 billion of similarly high-margin revenue. That gives roughly $17 billion of toll-booth revenue against $706 billion of net sales.

If all of that revenue earned a 70% operating margin, it would contribute $11.9 billion of operating income. Walmart actually earned $29.8 billion. So the toll booth, on these generous assumptions, is roughly 40% of consolidated operating income while being 2.4% of revenue. That is the bull case, stated fairly, and it is a genuinely good business.

Now do the growth arithmetic. Suppose the toll booth grows 30% a year for three years — faster than advertising has actually grown in any year except fiscal 2026, and much faster than the 38% print it just produced. In three years it would be $37 billion of revenue, up from $17 billion, adding $14 billion of high-margin revenue. At a 70% margin that is $9.8 billion of incremental operating income, which against fiscal 2026's $29.8 billion base and $706 billion of revenue would take consolidated operating margin from 4.22% to roughly 5.4%.

A 5.4% operating margin by fiscal 2030 is the realistic bull case, and it requires the highest- margin business in the company to compound at 30% for three years. That would be an extraordinary outcome. It would also leave Walmart operating at a margin lower than Target's and roughly a third of Costco's per-dollar-of-revenue economics on the club format. The mix shift is real; it is not transformative; and the market is pricing it as though it might be.

There is a second, quieter margin story that gets less attention and matters more: the cost of the core. Walmart's gross margin expanded in fiscal 2026 — Q2 FY27 gross profit rate was up 96 basis points year over year, led by Walmart U.S. and driven substantially by the tariff refunds. But operating expenses grew 6.4% against revenue growth of 5.9%, so the operating margin expansion was less than the gross margin expansion. The company is reinvesting its gross margin gains into wages, price, technology and delivery. That is a strategic choice, and it means the mix shift has to run faster than the reinvestment just to stand still.

14 — Quality of earningsFour numbers that do not appear in the headline

Reported earnings per share can be adjusted in ways that obscure the underlying business. Walmart's adjustments are, on the whole, defensible and well disclosed. But there are four numbers in the fiscal 2026 and fiscal 2027 disclosures that a reader should hold in mind.

The first is the equity investment line. Walmart carries a portfolio of equity investments, including its retained stakes in JD.com, Flipkart-related holdings and others, and marks them to market through "other gains and losses" in the income statement. In fiscal 2026 that line was a net gain large enough that GAAP diluted EPS of $2.73 exceeded adjusted EPS of $2.64 — an unusual relationship in which the adjusted figure is lower than the reported one. In the second quarter of fiscal 2027 the reverse happened: reported EPS was $0.80 and adjusted EPS $0.81, with a $0.12 net loss on equity investments partly offset by an $0.11 tax benefit. An investor tracking Walmart's earnings should use adjusted EPS and understand that the adjustment is mostly mark-to-market on a portfolio the company does not manage for income.

The second is the PhonePe share-based compensation charge. Walmart consolidates PhonePe, and PhonePe has granted equity to employees that must be expensed. That charge ran through the corporate line — $722 million in the third quarter of fiscal 2026 alone — and is the largest single reason the corporate and support segment loss widened to $2.9 billion in fiscal 2026 from $2.4 billion in fiscal 2025. The charge is non-cash, and it is excluded from adjusted figures. It is also a real cost of building a payments business in India, and it will continue until PhonePe is listed.

The third is the tariff refund. Nearly $2.9 billion of IEEPA refunds received in the second quarter of fiscal 2027, contributing roughly 750 basis points of the 28.8% reported operating income growth. This is a genuine cash receipt, and it is a one-off. Management used it to fund price investment, which is the right decision, but the accounting effect is a permanently elevated comparative for the second quarter of fiscal 2028.

The fourth is the return on investment. Walmart reports ROI of 15.1% for fiscal 2026, down 40 basis points from 15.5% in fiscal 2025, and 15.4% for the trailing twelve months ended 31 July 2026. Return on assets was 8.2% and 8.0% respectively. The company notes that fiscal 2026 ROI was negatively affected by about 35 basis points from discrete items. ROI of 15% is a good number for a retailer. It is also the number that has to rise for the capital expenditure programme to be justified, and it fell in fiscal 2026 even before the largest year of capital spending.

One further quality-of-earnings point, on inventory. Walmart ended the second quarter of fiscal 2027 with $61.6 billion of inventory, up 6.7% year over year and 6.0% in constant currency, against revenue growth of 5.9%. Inventory is growing slightly faster than sales. That is not alarming — a company expanding marketplace and adding stores will carry more goods — but it is the kind of gap that, sustained for several quarters, precedes markdowns. In a business with a 24-25% gross margin, a one-point inventory markdown is roughly $600 million of gross profit.

15 — Capital allocationFifty-three years of dividend increases, and a buyback at a 2.8% earnings yield

Walmart's capital allocation is conservative, consistent and, at the current price, questionable in one specific respect.

The dividend is the foundation. In February 2026 the board approved an annual dividend of $0.99 per share, the 53rd consecutive annual increase. Walmart paid $7.5 billion of dividends in fiscal 2026 against free cash flow of $14.9 billion — a 50% payout of free cash flow, which is comfortable. The yield at $108.16 is 0.92%.

The cash flow chart above contains the most important tension in Walmart's capital allocation. Cash returned to shareholders in fiscal 2026 was $15.6 billion — $7.5 billion of dividends and $8.1 billion of buybacks — against $14.9 billion of free cash flow. That is a payout of 105% of free cash flow, funded by a modest increase in debt. It is not reckless: total debt of $57.2 billion against $41.6 billion of operating cash flow is a comfortable position, and Walmart is one of a handful of companies in the world with an AA credit profile. But it does mean the buyback is being financed, and the financing is being raised at a higher cost than the yield on the stock being repurchased.

That is the specific criticism. Walmart bought back 85 million shares for $8.1 billion in fiscal 2026, an average price of roughly $95. At $108.16, the forward earnings yield on the stock is 2.8%. Walmart's cost of debt is in the 4.5-5% range. Every dollar borrowed at 4.8% to retire stock earning 2.8% destroys value in a discounted-cash-flow sense, unless the stock is undervalued, in which case the buyback is an arbitrage. We do not think it is undervalued at 36 times forward earnings, and we therefore do not think a debt-funded buyback at this price is good capital allocation.

The counter-argument, and it is a fair one, is that Walmart's share count is falling at roughly 1% a year and that a company generating $41.6 billion of operating cash flow has no difficulty servicing incremental debt. Both are true. The question is whether the capital would earn more inside the business. Given that capital expenditure is rising to 4% of net sales and that ROI fell in fiscal 2026, the honest answer is that Walmart is already spending heavily on itself, and the marginal dollar is going to shareholders because management does not have a better use for it. That is a reasonable answer. It is also an admission about the growth rate.

16 — Balance sheet & financingAn AA balance sheet, and why it matters less than it used to

Walmart's balance sheet is one of the strongest in corporate America. At 31 July 2026 the company held $11.5 billion of cash and carried $57.2 billion of total debt. Operating cash flow for the first half was $19.7 billion, up $1.4 billion year over year. Net debt of roughly $46 billion is about 1.4 times annual operating cash flow, and interest coverage is measured in double digits.

The debt has risen. Total debt was $51.5 billion at the fiscal 2026 year end and $57.2 billion six months later — an increase of $5.7 billion in two quarters. Debt interest expense, however, fell 79% year over year in the second quarter, to $137 million from $651 million, because the company has been refinancing higher-coupon paper into a market that prices its credit extremely tightly. Net interest expense was $791 million for the first half, down 35.1%.

Two structural features of the balance sheet are worth understanding.

The first is inventory as the real balance-sheet risk. Walmart carried $61.6 billion of inventory at the end of the second quarter, up 6.7%. In a business with a 24-25% gross margin, inventory is the largest single use of working capital and the largest single source of earnings risk. A company with a strong balance sheet can afford to be wrong about inventory once. Walmart's scale means it is rarely wrong, and it also means that when it is, the number is large.

The second is the lease obligation. Walmart's reported debt of $57.2 billion excludes operating lease liabilities, which are substantial — the company leases a large share of its store estate and its entire e-commerce fulfillment buildout is lease-heavy. Finance lease interest was $251 million in the first half of fiscal 2027, up 6.4%. On a lease-adjusted basis, Walmart's leverage is meaningfully higher than the headline debt figure suggests. This is standard for retailers and it is fully disclosed, but any comparison of Walmart's leverage to a non-retail company's is misleading without it.

Why does the balance sheet matter less than it used to? Because Walmart's valuation is no longer driven by its creditworthiness. When the stock yielded 2.5% and traded at 20 times earnings, the balance sheet was the anchor of the investment case — it was what made the dividend safe. At a 0.92% yield and 36 times forward earnings, the dividend is no longer the reason to own the stock, and therefore the balance sheet is no longer the reason to hold it through a drawdown. The safety argument has migrated from the balance sheet to the business model.

17 — Automation and capital intensityThe $29 billion a year that has to earn its keep

Walmart is in the middle of the largest capital programme in its history, and it is being run for speed and cost-to-serve rather than for new square footage.

Capital expenditure was $13.1 billion in fiscal 2022 — 2.29% of net sales — and $26.6 billion in fiscal 2026, or 3.77% of net sales. Management guides approximately 4.0% of net sales for fiscal 2027, which on guided revenue is roughly $29 billion. Capital intensity has risen 65% in five years.

The disclosed outcomes are real. As of the third quarter of fiscal 2026, more than 60% of Walmart U.S. stores received some freight from automated distribution centres, and more than 50% of e-commerce fulfillment centre volume was automated. Management attributed better unit productivity and a lower cost to serve to that automation. Walmart has also been reported to be spending on the order of $5 billion with Symbotic on warehouse automation.

The financial test is whether return on investment rises. It did not in fiscal 2026: ROI fell 40 basis points to 15.1%, and the trailing figure at the second quarter of fiscal 2027 was 15.4%. That is not a failure — capital deployed this year produces returns over five to ten years, and the average invested capital denominator grows before the numerator does. But it does mean the automation programme has not yet demonstrated a return in the reported numbers, and an investor paying 36 times forward earnings is paying for the return before it appears.

There is a competitive dimension here that matters more than the accounting. Walmart's advantage in grocery delivery is that its stores are the fulfillment network. Amazon's advantage in general merchandise is that its fulfillment centres are purpose-built. The automation programme is Walmart closing the second gap while exploiting the first. If it works, Walmart ends up with the lowest cost to serve in American retail for the categories where frequency matters. If it does not, Walmart ends up with a much larger fixed asset base and a margin that has not moved.

18 — The competitive mapAmazon is bigger, Costco is better, and Walmart is the only one of the three that is both

Walmart's competitive position is best understood by comparison, and the comparisons cut in different directions.

Amazon passed Walmart as the largest company in the world by annual revenue in February 2026, reporting $716.9 billion against Walmart's $713.2 billion. The comparison is not clean — Amazon's revenue includes AWS and advertising, and Walmart's includes 10,900 physical stores — but it matters for one reason: Amazon trades at roughly 20.6 times trailing earnings and Walmart at 39.2 times. An investor can buy the larger, faster-growing, more diversified business at half the multiple. The defence of Walmart is that its earnings are more predictable and its retail franchise more defensive; the offence against it is that Amazon has already built the higher-margin businesses Walmart is trying to build, at greater scale.

Costco is the better business. Costco trades at 44.5 times trailing earnings — a premium to Walmart — and earns it with a membership model that is cleaner, a renewal rate that is higher, and a comparable-sales record that is more consistent. Costco's weakness is scale: it is roughly a fifth of Walmart's revenue and has no meaningful answer to Walmart's grocery delivery density. If an investor wants pure membership economics, Costco is the better instrument. If an investor wants the mix-shift option on a $713 billion base, Walmart is the only place to get it.

Target is the cautionary case. Target trades at roughly 16.0 times trailing earnings after a difficult stretch, having built a general-merchandise business that is discretionary, non-food and therefore exposed to exactly the low-income consumer pressure Walmart has been describing. Target's problem is Walmart's advantage: Walmart sells food, and food is what people buy when they stop buying everything else.

Kroger is the pure-play grocer, and it trades at roughly 32.2 times trailing earnings — a striking figure for a business with a 1-2% net margin, and evidence that the entire grocery complex has re-rated on the same narrative. Kroger has scale in food but no general merchandise, no membership flywheel of consequence, and a smaller advertising business.

The dollar stores and the regional grocers are losing share to Walmart, and that is the clearest competitive positive in the story. Walmart reported market-share gains across income cohorts in the second quarter of fiscal 2027. Trade-down from higher-priced grocers is a durable tailwind because it brings in customers who stay.

The synthesis: Walmart is not the best business in retail — Costco is — and it is not the fastest-growing — Amazon is. It is the only business that combines food-scale, delivery density and a general-merchandise assortment. That combination is genuinely difficult to replicate and is the strongest argument for owning the shares. It is an argument about durability, not about growth, and durability is what the multiple should be, and is not, being asked to pay for.

19 — Tariffs, pharmacy and the cost stackThe two policy variables that moved Walmart's numbers this year

Walmart's fiscal 2027 results have been shaped by two policy decisions it did not make, and both are worth understanding in detail because both will reverse.

The first is the IEEPA tariff refund. Walmart, like every large importer, paid tariffs on Chinese and other goods under the International Emergency Economic Powers Act. When those tariffs were voided, the collected amounts became refundable, and Walmart received nearly $2.9 billion in the second quarter of fiscal 2027. The company disclosed that adjusted operating income growth of approximately 17% in constant currency included a 750 basis point net benefit from tariff refunds. It also said it prioritised investment in price, delivering more than 11,000 rollbacks during the quarter.

Two things follow. First, the refund is a genuine cash receipt and it strengthened the second quarter's reported results. Second, it is not repeatable. The comparative for the second quarter of fiscal 2028 will include $2.9 billion that will not recur, which means reported operating income growth in that quarter will be under pressure regardless of how the business performs. An investor should mentally remove the refund from both quarters before drawing any conclusion about the trend.

The second policy variable is pharmacy reimbursement. Walmart U.S. comparable sales of 2.6% in the second quarter of fiscal 2027 carried a negative impact of roughly 125 basis points from the Maximum Fair Pricing provisions, which reduce what pharmacies are paid for certain drugs. Excluding the wellness category, U.S. comps were 3.4%.

This is more consequential than the tariff refund, because it is structural rather than one-off. Pharmacy is a traffic category. A customer who fills a prescription at Walmart walks past the general-merchandise aisles, and the prescription is often the reason for the trip. If reimbursement pressure reduces the economics of operating a Walmart pharmacy, the company has three options: accept lower pharmacy margin, close pharmacies (which costs traffic), or use pharmacy as a loss leader to protect the rest of the basket. Walmart has historically chosen the third. That is a defensible strategy for a company with a 4% operating margin and $713 billion of revenue, but it means the reported comps will understate the health of the underlying business for as long as the pressure persists — and it means the segment's reported margin improvement is being achieved partly by absorbing a policy cost.

On the broader cost stack, Walmart's disclosures have been consistent: a "normalised price environment" as the initial tariff shock was absorbed, inflation in the U.S. running a little above 1% in the fourth quarter of fiscal 2026, slightly lower in food and slightly higher in general merchandise. Wage investment continues. Technology and automation spending is running through the operating expense line as well as the capital line. The company's operating expense growth of 6.4% in the second quarter of fiscal 2027 against revenue growth of 5.9% is the summary: costs are growing faster than sales, and the margin improvement is coming from the gross margin line and from the mix.

20 — Labour and the associate model2.1 million people, and the largest wage bill in American business

Walmart employs approximately 2.1 million people. The average Walmart U.S. hourly wage has risen substantially over the past decade, and the company has repeatedly cited wage investment as a use of the gross margin gains it has produced. This is the single largest controllable cost in the company and the least discussed in the investment case.

The arithmetic is stark. Walmart U.S. employs on the order of 1.6 million people. A one-dollar-per- hour increase in the average wage, at an average of roughly 1,500 hours per year, is approximately $2.4 billion of incremental annual expense — roughly 8% of consolidated operating income. A 50-basis-point increase in the employer payroll tax rate would be a similar order of magnitude. There is no other line item in the company with that leverage.

Two forces are pushing in opposite directions. Automation reduces the labour required per unit of throughput: more than 60% of stores receiving freight from automated distribution centres and more than 50% of e-commerce fulfillment volume automated is a labour-substitution programme at scale. But the delivery business is labour-intensive at the last step, and delivery is the fastest-growing part of the company. The net effect on labour cost per dollar of revenue is genuinely unclear, and Walmart does not disclose it.

There is also a strategic dimension. Walmart's ability to staff 4,600 supercentres at a wage that supports a 4% operating margin is itself a competitive moat: no new entrant can build a grocery delivery network with a comparable labour cost base. If wages rise materially faster than productivity, that moat narrows — and the companies with the least exposure are those with the highest revenue per employee, which is not Walmart.

On the positive side, Walmart's scale gives it unusual flexibility. It can absorb a wage increase by taking a fraction of a point less margin, which most competitors cannot do without going out of business. The trade-off is that it cannot use wage investment to differentiate: it can match any competitor's wage and still have the lowest cost structure in the industry, which is precisely what it has done for a decade.

21 — Regulation and legalLow litigation risk, high legislative risk

Walmart's legal exposure is, relative to its size, modest. The company settled the bulk of its opioid litigation several years ago, and the resulting charges were a meaningful part of the fiscal 2023 margin trough. What remains is ordinary-course litigation: employment class actions, consumer-protection claims, product liability, and the routine intellectual property and contract disputes that any company of this size encounters.

The regulatory exposure is more interesting and less quantifiable, and it falls into four buckets.

Pharmacy and healthcare pricing is the live one. The Maximum Fair Pricing provisions are already costing Walmart 125 basis points of comparable sales. Further federal or state action on drug pricing, pharmacy benefit managers, or reimbursement rates would compound it. Walmart is one of the largest pharmacy operators in the United States, so it is exposed in proportion to its scale.

Labour law is the perennial one. Any change to the federal minimum wage, overtime rules, joint-employer standards or union-organising rules has a direct cost to a company with 2.1 million employees. Walmart has historically been the target of organising efforts and has successfully resisted them; a change in the legal framework would alter that.

Antitrust is the tail risk that deserves more attention than it gets. Walmart is the largest grocer in the United States with roughly a quarter of the grocery market, and it is growing share. The FTC has shown increased appetite for challenging large-platform conduct, and Walmart's combination of first-party retail, marketplace, advertising and fulfillment services is exactly the kind of vertically integrated structure that attracts scrutiny. The specific risk is not that Walmart is broken up — that is remote — but that restrictions on self-preferencing or on the combination of marketplace and advertising data would raise the cost of the toll-booth strategy.

Data and privacy is the newest. Retail media depends on Walmart's ability to use purchase data to target advertising. Any restriction on the use of transaction data for advertising purposes would hit the highest-margin business in the company directly. Federal privacy legislation has been discussed for years without passage, and the state-level patchwork is growing. This is a low-probability, high-impact risk in the near term and a moderate-probability risk over a decade.

22 — Management and the Furner transitionA new chief executive, and a strategy that is deliberately unchanged

John Furner became President and Chief Executive Officer of Walmart on 1 February 2026, succeeding Doug McMillon, who retired after more than a decade in the role. Furner is a 30-year Walmart veteran who ran Walmart U.S. before taking the top job, and his first letter to shareholders, published with the fiscal 2026 annual report in April 2026, is notable for how little it changes.

The letter emphasises the same three things McMillon emphasised: e-commerce growth, the mix shift into higher-margin businesses, and investment in associates and technology. Furner described the company as "people-led, tech-powered," highlighted the fiscal 2026 results of 5.1% constant-currency revenue growth and 5.4% adjusted operating income growth, and framed the strategy as one of consistency rather than reinvention. The board's message, from chairman Greg Penner, was explicit that capital deployment — whether in AI, automation, or store and club expansion — is viewed through a return-on-investment lens.

For an investor, continuity is the right outcome. Walmart's problem is not strategy; it is that the strategy is being executed on a base so large that the results arrive slowly. A new chief executive who tried to change direction would add execution risk to a business whose entire investment case rests on the reliability of its execution.

There are three things to watch. First, whether the capital intensity of 4% of net sales persists under Furner or is moderated — a reduction would be immediately accretive to free cash flow and would signal a different view of the returns available. Second, whether the marketplace and advertising organisations are integrated more tightly into the store operations, which is where the incremental margin has to come from. Third, whether the international portfolio is rationalised: Flipkart and PhonePe listings would crystallise value, and there has been persistent market speculation about both.

On incentives, Walmart's executive compensation is tied to comparable sales, operating income and return on investment — the right metrics, and notably not to revenue growth alone. The presence of ROI in the incentive plan is a meaningful signal about how the board views the capital programme.

23 — ValuationThirty-six times forward earnings, against a 5.31% risk-free rate

Walmart trades at $108.16, a market capitalisation of $858 billion, and 39.2 times trailing earnings of $2.76 per share. On the midpoint of fiscal 2027 adjusted EPS guidance of $2.80-$2.87, the forward multiple is 38.2 times; on the consensus-before-guidance figure, approximately 36.1 times. The dividend yield is 0.92%. The shares have traded between $98.88 and $135.16 over the last twelve months, and are 20% below the high.

The peer chart is uncomfortable for the bull case. Walmart's 39.2 times trailing earnings sits above Kroger's 32.2 times and nearly double Amazon's 20.6 times and Target's 16.0 times. Only Costco, at 44.5 times, trades higher — and Costco earns that premium with a cleaner membership model, a higher renewal rate and a better comparable-sales record. The historical context matters: Walmart has traded between roughly 20 and 30 times earnings for most of the last two decades. The re-rating to 39 times is recent, and it is the single largest contributor to the stock's return over the last three years.

The cleanest way to see what that means is to invert the multiple into an earnings yield and compare it to what an investor can earn risk-free.

Walmart's earnings yield is 2.55%. The ten-year Treasury yields 5.31%. An investor buying Walmart today is accepting equity risk — the risk of a margin miss, a consumer downturn, a competitive shock, a policy change — in exchange for an earnings yield that is 276 basis points below the risk-free rate. That is not automatically wrong: earnings yields are low when earnings are expected to grow, and Walmart's earnings are expected to grow. But it sets the hurdle. For Walmart to beat a Treasury, the earnings have to grow fast enough to close a 276-basis-point gap and then some.

How fast would that have to be? If an investor requires a 6% total return from Walmart — the risk-free rate plus a thin 70-basis-point equity risk premium — and the dividend contributes 0.92%, the share price needs to grow 5.1% a year. On a constant multiple, that requires adjusted EPS to compound at 5.1% a year. Walmart has compounded adjusted EPS at roughly 7% over the last five years and guides to 6-9% for fiscal 2027. So the required growth rate is achievable — but only if the multiple holds at 36 times, which is the assumption the whole valuation rests on.

The EPS bridge above sets out the fiscal 2027 arithmetic. Walmart guides adjusted EPS of $2.80 to $2.87, a midpoint of $2.83, on adjusted operating income growth of 7.0% to 8.5% in constant currency. Higher net interest of roughly $250 million and a 23.5-24.5% effective tax rate absorb part of the operating gain; the buyback adds about two cents. The result is approximately 7% adjusted EPS growth — solid, unremarkable, and entirely consistent with a company whose revenue is growing 5%.

For fiscal 2028 we assume adjusted EPS of $3.08, which is high- single-digit growth on the fiscal 2027 midpoint. That is a Farstar estimate, not company guidance, and it is consistent with the run rate of the last two quarters once the tariff refund is removed.

The target price then becomes a question of the multiple. We use 37 times fiscal 2028 adjusted EPS of $3.08, which gives $114. That multiple is a small discount to the current trailing multiple and a substantial premium to Walmart's long-run average. We think it is the right compromise: the mix shift justifies a premium to history, and the deceleration in comparable sales, advertising growth and International profit growth argue against paying the current multiple indefinitely.

A cross-check on free cash flow. Walmart generated $14.9 billion of free cash flow in fiscal 2026 and is spending approximately 4% of net sales on capital, so fiscal 2027 free cash flow is likely to be in the $15-17 billion range. At $858 billion of market capitalisation, that is a free cash flow yield of roughly 1.8%. For a business growing free cash flow at single digits, an 1.8% free cash flow yield implies a very long duration of growth. It is not impossible — Walmart's cash flows are about as durable as any in the market — but it is a demanding starting point.

24 — The bull caseSeven arguments we take seriously

1. The delivery network is a genuine, difficult-to-replicate advantage. Walmart can deliver groceries to a majority of the U.S. population from a store that already exists and is already staffed. Amazon has to build the last mile; Walmart owns it, 4,600 times over. Store- fulfilled delivery grew 40% in the second quarter of fiscal 2027 and 35% of those orders arrived in under three hours as of the third quarter of fiscal 2026. This is the only structural advantage in American retail that has been built in the last decade and cannot be bought with capital.

2. The mix shift is real and the margins are real. Advertising grew 46% in fiscal 2026 and 38% in the most recent quarter. Membership income grew 19% in the first half of fiscal 2027. Marketplace grew more than 50%. These are capital-light, high-margin, annuity-like revenue streams attached to a customer relationship Walmart already owns, and they are growing three to ten times faster than the core.

3. Trade-down is a durable tailwind. Walmart reported market-share gains across income cohorts, including among households earning more than $100,000. A customer who trades down during a soft period often stays, because the price advantage is structural and the convenience improves every year. Every share point gained from a regional grocer is a customer acquired at zero customer-acquisition cost.

4. The balance sheet and cash flow are close to unassailable. $41.6 billion of operating cash flow, an AA credit profile, $11.5 billion of cash and 53 consecutive years of dividend increases. Walmart will not be forced into a distressed capital action by anything in this report, and the downside from any operating disappointment is bounded by the cash generation rather than by the balance sheet.

5. The stock has already de-rated 20% from its high. The 52-week range is $98.88 to $135.16. The shares are at $108.16, having fallen from a $1 trillion market capitalisation in February 2026. Some of the valuation excess has already been removed, and the stock now trades at a forward multiple close to its trailing multiple — that is, with no growth premium embedded.

6. There are real catalysts. A Flipkart listing and a PhonePe listing would each crystallise value that the market does not currently ascribe to Walmart. Both have been reported to be in preparation, Flipkart re-domiciled to India in March 2026, and the PhonePe structure has been reported as a pure offer-for-sale. The combined private valuations would be a meaningful fraction of Walmart's market capitalisation.

7. The earnings are defensive. Walmart sells food. In a recession, revenue does not fall; it grows as customers trade down. A business with a beta of 0.58, 4.8% revenue growth and a non-discretionary category mix is a genuinely defensive holding, and defensive holdings command premiums in uncertain markets.

25 — The bear caseSeven arguments we cannot dismiss

1. The earnings yield is below the risk-free rate. 2.55% against a 5.31% ten-year Treasury. Walmart has to grow earnings faster than the risk-free rate just to break even against a government bond, before any equity risk premium. That is the single strongest argument against owning the shares here, and it does not depend on any forecast about the business.

2. Comparable sales are decelerating and the mix is not yet offsetting it. Walmart U.S. comps fell from 4.6% to 2.6% in two quarters. Even excluding the pharmacy impact, 3.4% is a deceleration. The store-only comp — 77% of the segment — is running close to flat while e-commerce grows 24%. The digital business is carrying the whole comparable-sales number.

3. Advertising growth is decelerating, and it is 0.9% of revenue. From 46% to 38% in two quarters, in a category that now has a dozen well-funded competitors selling the same shopper data to the same consumer-goods advertisers. Even if advertising doubles again, it adds roughly 90 basis points of consolidated operating margin over three years.

4. International profit growth has collapsed. Constant-currency operating income growth fell from 26.5% to 5.7% across four quarters while constant-currency sales growth held at 7.5-11.4%. Either the growth is lower quality than reported, or the investment cycle is longer and more expensive than expected. Both readings are negative for the multiple.

5. Capital intensity has risen 65% with no margin improvement. Capital expenditure went from 2.29% of net sales to 3.77%, and is guided to 4.0%. Return on investment fell 40 basis points in fiscal 2026. The automation programme has not yet demonstrated a financial return, and the capital is being spent before the revenue arrives.

6. The most recent quarter's headline was flattered by a one-off. 28.8% operating income growth, of which approximately 750 basis points came from $2.9 billion of tariff refunds. The comparative for the second quarter of fiscal 2028 will be against a refund-inflated base, which means reported growth in that quarter will look poor regardless of performance.

7. The multiple is not supported by the peer set. Walmart trades at 39.2 times trailing earnings against Amazon's 20.6 times and Target's 16.0 times. Amazon is larger, growing faster, and has already built the higher-margin businesses Walmart is attempting to build. If Walmart's multiple converges toward its own long-run average of 20-30 times, the shares fall 25-45% even if earnings grow as guided.

26 — Risk matrixTwelve risks, ranked by probability times impact

The table below ranks the risks we consider material to the investment case. Probability and impact are scored from one to five, where one is remote or immaterial and five is near-certain or severe. The score is the product. A score of 16 or above means the risk is both likely and consequential and should be reflected in the price; a score below 8 means it is a tail to be monitored rather than a thesis.

Two observations follow. The first is that the three highest-scoring risks are all valuation or near-valuation risks rather than solvency risks. Walmart will not run out of money, lose its customers, or fail to pay its dividend. What can happen is that the price paid for a 4.2% operating margin and a 4.8% revenue compounder turns out to have been too high, and that the correction is large precisely because the starting multiple is 39 times earnings.

The second is that the risks are correlated. R1, R3 and R4 — comparable sales, advertising growth and International profit — are all expressions of the same underlying question: does the mix shift into higher-margin services scale fast enough to change the consolidated margin? If it does, all three resolve favourably and R2 never materialises. If it does not, all three deteriorate together and the multiple compresses. An investor who is wrong about the mix shift is likely to be wrong about the multiple as well, which is why our bear case of $88 is not a tail scenario. It is the value of the business at 30 times earnings on modestly lower estimates, and 30 times is still a premium to Walmart's long-run average.

27 — CatalystsWhat we are watching, and when

28 — ConclusionNeutral at $114, on the best operator in retail and a price that assumes it always will be

Walmart is an exceptionally well-run company. It has grown revenue for eight consecutive years, turned a physical estate into a delivery network that Amazon cannot easily replicate, built a $6.4 billion advertising business from nothing, and produced $41.6 billion of operating cash flow in a year when it also spent $26.6 billion on capital. It employs 2.1 million people, feeds a substantial fraction of the United States, and has raised its dividend for 53 consecutive years. None of that is in question.

What is in question is the price. At $108.16 the shares trade at 39.2 times trailing earnings, a 0.92% dividend yield, and an earnings yield of 2.55% against a 5.31% ten-year Treasury. The operating margin is 4.22% and has not moved in eight years. Revenue compounds at 4.8%. The higher-margin businesses that justify the multiple are 1.9% of net sales and, on the most generous assumptions, can add roughly 90 basis points of margin over three years.

Our twelve-month target is $114, approximately 37 times our fiscal 2028 adjusted EPS estimate of $3.08, which is high-single-digit growth on the midpoint of company guidance. That implies a price return of 5.4% and a total return of roughly 6.3% including the dividend. We rate the shares Neutral. The market is paying a growth multiple for a company whose growth, on its own guidance, is 7% — and paying it with the ten-year Treasury at 5.31%.

29 — AppendixFinancial summary tables

All figures are from Walmart Inc. filings and earnings releases as identified in the sources section. Amounts are in billions of US dollars unless stated otherwise. Fiscal years end 31 January and are referred to by the year in which they end; FY2026 means the twelve months ended 31 January 2026.

30 — SourcesPrimary and secondary references

This report is built from primary disclosure wherever possible. The following documents were used.

Primary — company filings and releases

Walmart Inc. Form 10-K for the fiscal year ended 31 January 2026, filed with the SEC in April 2026, including the consolidated financial statements, Note 11 (segments) and the MD&A. Walmart Inc. Form 10-Q for the quarter ended 31 July 2026. Walmart Inc. earnings releases furnished as Exhibit 99.1 on Form 8-K: Q4 FY2026 (19 February 2026), Q1 FY2027 (21 May 2026) and Q2 FY2027 (20 August 2026), together with the accompanying earnings presentations and call transcripts. Walmart Inc. Q3 FY2026 earnings release (20 November 2025). Walmart Inc. press release, "Walmart Raises Annual Dividend to $0.99 per Share, Marking 53rd Consecutive Year of Dividend Increases," 19 February 2026. Walmart Inc. press release, "Walmart Releases 2026 Annual Report and Proxy Statement," 23 April 2026, including John Furner's first letter to shareholders and Greg Penner's chairman's message. Walmart Inc. Q1 FY2027 and Q2 FY2027 earnings call remarks, including the constant-currency and IEEPA tariff-refund disclosures.

Secondary — market data and reporting

stockanalysis.com, Walmart Inc. (WMT) stock price, valuation and forecast data, retrieved 7 October 2026. financecharts.com and public.com, trailing price-to-earnings ratios for WMT, COST, AMZN, TGT and KR, retrieved 7 October 2026. CNBC, US 10-year Treasury yield (US10Y), retrieved 7 October 2026. CNBC, "Walmart reports strong holiday growth, but earnings outlook falls short of estimates," 19 February 2026. CNBC, "Amazon revenue passes Walmart," 19 February 2026. Retail Dive, "3 takeaways from Walmart's 2026 annual report," 27 April 2026. Digital Commerce 360, "Walmart online sales in Q4 grow more than 20% to cap fiscal 2026," 23 February 2026. PPC Land, "Walmart Connect hits 41% growth as ad business nears $6.4B." DTC Dispatch and PYMNTS reporting on Walmart+ paid membership counts, February to June 2026. Oppenheimer research note downgrading Walmart to Perform from Outperform, reported 19-20 August 2026. Foreign Policy Journal, "Walmart (NYSE: WMT) Stock Faces Steep Road Back To $1 Trillion Valuation As Growth Slows," 19 September 2026.

Notes on method

Where a figure is a Farstar estimate rather than a company disclosure, it is labelled as such in the text and in the chart notes. Fiscal 2028 adjusted EPS of $3.08, the FY2027 EPS bridge components, the scenario probabilities, the implied-value sensitivity grid and the risk scores are all Farstar judgements. Constant-currency figures are as disclosed by the company. Segment margin percentages are computed by Farstar as segment operating income divided by segment net sales and may differ in the second decimal place from the company's own rounding.

31 — DisclosureConflicts, limitations, and revision policy

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