Kevin O'Leary's $29 Walmart Jeans Are a Great Deal. Walmart's Stock May Not Be.

On August 20, Walmart reported the kind of quarter most retailers would frame and hang on the wall. Revenue rose 5.9% to $187.9 billion. Operating income climbed 28.8%. Online sales grew 23% worldwide, and adjusted earnings of $0.81 a share beat the $0.74 Wall Street had penciled in. Management raised its full-year guidance on the same call. By the close, the stock was down about 9%.

A week later, Kevin O'Leary held up the black jeans he says he wears all the time: $29, a "Walmart special". He had been standing in the paper-towel aisle comparing pack sizes, noting that the bulk Bounty bundle is "like 18 small rolls", and his explanation was complete. "I'm always looking for a great deal, that's why I'm in Walmart". O'Leary's estimated net worth is $400 million; he keeps homes in Florida, Massachusetts, and Toronto. "Inflation affects all of us", he said.

The clip and the trading day are the same story. Everything that makes the $29 jeans possible is everything that moved Walmart's stock 9% in one session. Read one, and you understand the other.

The register math

Walmart's model is not to make money selling paper towels. It is to be the cheapest place for the things a household has to buy anyway — groceries are about half of its sales — so that roughly 150 million people walk through its U.S. stores and website every week. Each visit is the real transaction. The jeans and the paper towels are the draw at razor-thin margin; the profit is harvested afterward from layers built on top of the trip: national brands paying to advertise at the register and in search results, Walmart+ memberships (members spend about four times what nonmembers do), private-label lines, and marketplace fees.

That structure is why a company that rings up more than half a trillion dollars in annual sales collects operating margins of about 4.2% — it cannot charge more and stay the cheapest, so the earnings have to come from the machines stacked over the store visit. Advertising now provides about a third of Walmart's profit and reached $6.4 billion in fiscal 2026. In this sense, the cheap Bounty pack is subsidized by the ad engine. Mr. Wonderful's receipt has a subsidy, and the bill is paid by every brand trying to get into his cart.

Two asterisks

Now re-read the August 20 print the way a shareholder has to. The growth was real, but two asterisks did much of the arithmetic.

First, the profit jump was flattered by refunds. Adjusted operating income rose 17.4% in constant currency, but roughly 7.5 percentage points of that growth came from tariff refunds — about $2.9 billion Walmart was eligible to receive and has now collected. Strip those out, and underlying profit growth sits near 10%, at the top of its own target range. Good. Not 28.8%.

Second, the number that scared the market — U.S. comparable sales up just 2.6%, the slowest pace in six years — was mostly a price rule, not a broken customer. Management attributed about 1.25 percentage points of the drag to a new maximum-fair-pricing regulation on certain prescription drugs. Pharmacies sit inside a U.S. store and inside its measured sales, so cheaper scripts lopped a point-plus off the headline. Without the rule, comps were closer to 3.8%. Target, which exited its pharmacy business years ago, posted 3.8% comp growth in the same quarter — a useful check that the gap was regulatory, not demand.

Here is the wrinkle that actually triggered the sell-off. Walmart is taking those one-time refunds and cutting prices again — more than 11,000 rollbacks in the quarter, up from 7,200 at the end of spring — and the cost of those rollbacks lands in the third quarter. Guidance calls for constant-currency operating-income growth of just 2% to 4% in Q3. Management argues that the second and third quarters, taken together, average about 10% growth. Wall Street prices quarters, not pairs.

Why a beat can cost you 9%

This is where valuation enters. Walmart changed hands near 40 times trailing earnings and about 35 times forecast next-year earnings — a premium a discounter with a 4.2% operating margin has historically never carried. Paying that much for compounding means the company must keep delivering smooth, growing results. When growth merely slows, even for a benign reason like a drug-pricing rule or a deliberate reinvestment, the same multiple wrings it out of the price. The stock has already fallen about 17% in four months, to roughly $103 — in the lower part of a 52-week range of $96.51 to $135.16 — even as the company raised its outlook for the year (sales growth of 4% to 5%, adjusted EPS of $2.80 to $2.87).

Shopper arithmetic

As a shopper, O'Leary is right, and the macro agrees: the July consumer price index was up 3.4% year over year, with food at 3.0% and energy at 14.7%. In that environment the cheapest cart wins. Walmart keeps gaining higher-income households trading down, while its lowest-income base is getting squeezed — U.S. transactions grew just 1.5% in the quarter, about half the prior pace — and fuel above $4 a gallon adds more than $2 billion to Walmart's own costs this year. The value position is the moat, and the moat is the reason margins stay thin.

As a shareholder, the question is what that certainty costs. A company that beats the quarter, raises the year, and still hands you a 9% loss in a day is telling you how little room is left between its growth and its multiple. Whether the trade works from here writes itself in two numbers: U.S. comps before the pharmacy rule (do rollbacks lift unit volume fast enough to offset the price cuts?), and whether the profit engine keeps turning — global ad revenue grew 38% in the quarter, membership income nearly 17% — because only those high-margin lines can keep funding prices that cannot go up.

O'Leary's paper-towel math — 12-plus rolls for the price of the small ones — is the right instinct for the cart. Applied to a stock near 35 times expected earnings, the discipline should stand: the deal is only as good as the growth that arrives afterward. The $29 jeans will still be there next week. So will the question of whether Walmart's register keeps printing fast enough for the price already paid.