Walmart Earnings: Strong Quarter Marred by Tariff Headwinds and Valuation Jitters

Walmart delivered a solid first-quarter earnings report, topping profit expectations and reaffirming its full-year outlook. However, concerns around tariff-related price pressures and valuation have cooled investor enthusiasm, sending the stock back to the $90–$92 support range after briefly touching the psychologically significant $100 level. While the company continues to benefit from its scale, diversified business model, and strength in essentials, forward commentary around trade policy and margin pressure has tempered sentiment.

Watch: How are retailers managing tariffs and supply chains?

Earnings and Key Metrics

For the quarter ended May 2, Walmart posted adjusted EPS of $0.61, beating analyst expectations of $0.58. Revenue rose 2.5% year over year to $165.61 billion, just under the consensus estimate of $165.84 billion. Comparable sales at Walmart U.S. climbed 4.5%, ahead of the 4.1% estimate, while Sam’s Club delivered a 6.7% comp gain excluding fuel. U.S. e-commerce revenue surged 21%, marking the 12th consecutive quarter of double-digit growth, with global e-commerce up 22%.

Walmart’s advertising business also posted impressive gains, rising 50% globally and 31% domestically through Walmart Connect. Membership income grew nearly 15%, helping lift overall operating income by 4.3%, or 3% on a constant currency basis.

Tariff Commentary Raises Alarm

While topline and margin performance was generally solid, management struck a cautious tone around tariffs, suggesting consumer prices are likely to increase in the coming weeks. CFO John David Rainey warned that the scope and pace of tariff hikes are “unprecedented,” and could “jeopardize [Walmart’s] ability to grow earnings year over year” if not managed carefully.

CEO Doug McMillon noted that while Walmart is doing its best to hold prices steady, “the magnitude of these tariffs is more than any retailer or supplier can absorb.” The company cited Chinese imports—especially electronics and toys—as the most exposed categories. Food imports from Costa Rica, Peru, and Colombia are also affected, driving up costs for items like bananas, avocados, and coffee.

Despite the rising cost pressure, Walmart emphasized its commitment to insulating food prices as much as possible. In some instances, such as flower pricing during Mother’s Day at Sam’s Club, Walmart absorbed higher costs rather than passing them on to customers.

Segment Highlights and E-Commerce Milestone

Walmart marked a significant milestone this quarter: its global e-commerce segment became profitable for the first time. This was driven by improvements in economics around delivery and fulfillment, as well as the continued growth of higher-margin businesses such as online advertising and its third-party marketplace. Notably, Walmart has not canceled any inventory orders due to tariffs but has begun managing order quantities more conservatively, focusing purchases on items likely to retain consumer appeal even with higher pricing.

In the U.S., average ticket size increased 2.8%, while the number of transactions rose 1.6%. However, the deceleration in transaction growth marks the fourth consecutive quarter of slowdown, reflecting a more discerning consumer base. Still, Walmart executives said that shopper behavior has remained relatively consistent, with value continuing to be the top priority.

Guidance and Strategic Flexibility

Despite refusing to issue earnings or operating income guidance for Q2, citing a wide range of possible tariff outcomes, Walmart reaffirmed its fiscal year 2026 forecast. The company expects net sales to grow 3% to 4% and full-year EPS to fall in the $2.50 to $2.60 range, implying mid-single-digit earnings growth.

For Q2, Walmart anticipates 3.5% to 4.5% sales growth in constant currency. CFO Rainey said the company is taking a "longer view" and believes its momentum, particularly in groceries, advertising, and e-commerce, can offset near-term challenges.

Valuation Concerns and Market Reaction

While operational performance has been commendable, Walmart’s stock is facing valuation headwinds. Shares briefly rallied to $100 post-earnings but pulled back sharply to trade near the $90–$92 support area. At nearly 36x forward earnings, the valuation multiple is steep for a company with mid-single-digit earnings growth and uncertain near-term margins. Analysts remain supportive but note that any downside in consumer spending or upward pressure on costs could lead to further multiple compression.

Broader Implications

As the largest U.S. retailer, Walmart's earnings offer a crucial read on consumer behavior and the broader economic backdrop. The company’s commentary on tariffs underscores the potential for renewed inflationary pressures this summer, even as disinflation trends had begun to take hold. Retailers across the board will likely be forced to grapple with similar trade-related headwinds, making Walmart’s flexibility and sourcing network a relative advantage.

Ultimately, Walmart remains well-positioned to “play offense” through aggressive pricing, omnichannel investments, and a growing suite of high-margin services. But with consumer sensitivity elevated and tariffs casting a shadow, investors are growing more cautious about how much near-term upside remains at current valuation levels.