Why Walmart’s Q1 Headwinds Are a Hidden Gem for Long-Term Investors

Walmart’s Q1 2025 earnings report revealed a company navigating headwinds with strategic precision. While modest same-store sales growth and tariff pressures have sparked short-term concerns, the results underscore a deeper truth: Walmart’s structural advantages—dominant e-commerce momentum, diversified revenue streams, and unmatched grocery scale—position it to outperform peers in the coming years. For investors, the near-term turbulence creates a rare buying opportunity.

The Near-Term Challenges: A Worthwhile Price to Pay

Walmart’s U.S. same-store sales grew 3.8% year-over-year, slightly above Bank of America’s 3% estimate but below some bullish forecasts. Meanwhile, tariffs and inflationary pressures have added $200 million in operating costs, contributing to a 5% YoY dip in adjusted EPS. These metrics have led some to question whether Walmart can sustain its dominance in a slowing economy.

But here’s the critical context: Walmart is engineering resilience, not stagnation. The company’s 3.8% transaction growth (vs. flat per-transaction spending) reflects a strategic pivot toward customer frequency over discretionary splurges—a shrewd move as households prioritize essentials. And while tariffs remain a nuisance, Walmart is countering with automation (aiming to slash online fulfillment costs by 30% by year-end) and supply chain diversification.

The Structural Strengths: Why This Is a Long-Term Growth Machine

1. E-commerce Dominance: Beating Estimates and Outpacing Peers
Walmart’s U.S. e-commerce sales soared 22% YoY, handily exceeding BofA’s 18% forecast and its own prior-quarter growth of 20%. Delivery volumes now outpace store pickup for the first time, a testament to Walmart’s logistics prowess. Meanwhile, its third-party marketplace—boasting over 420 items in the U.S. and 80% growth in Mexico—is attracting third-party sellers at a 36% clip.

2. Walmart Connect: The $3.4 Billion Profit Multiplier
Walmart’s retail media arm (Walmart Connect) grew 24% globally and 26% in the U.S., contributing one-third of the company’s operating income gains. By monetizing first-party data and omnichannel reach, it now generates $3.4 billion annually—nearly double its 2024 tally. This segment, with margins exceeding 30%, is a cash machine in an industry where peers like Target lack comparable scale.

3. Grocery Powerhouse and Strategic Acquisitions
Walmart’s grocery business, which accounts for 55% of U.S. sales, is leveraging deflation in staples (mid-single-digit declines) to attract budget-conscious shoppers. Simultaneously, the $2.3 billion acquisition of Vizio—a move into smart home tech—adds a high-margin, growth-oriented revenue stream.

Why the Stock Is Undervalued: BofA’s $120 Target and YTD Outperformance

Walmart’s stock hit an all-time high post-earnings, rising 7% on the day, and is up 58% year-to-date—tripling the S&P 500’s 11% gain. BofA’s $120 price target (the highest on Wall Street) reflects its confidence in Walmart’s ability to grow 3-4% in net sales and outpace peers like Target (down 25% over three months) and Kroger (stagnant e-commerce growth).

Addressing Risks: Tariffs, Inflation, and Margin Pressures

Critics will point to lingering macro risks: tariffs, wage pressures, and the potential for slower consumer spending. But Walmart’s playbook is clear:
- Cost Controls: Layoffs, inventory optimization (stockpiles down 2.7% YoY), and automation are shielding margins.
- Scale and Pricing Power: Walmart’s $161 billion revenue base and 5,500+ stores give it unmatched leverage over suppliers.
- Digital Innovation: Over 1,400 stores now feature premium brands like Love & Sports, attracting younger shoppers while retaining core customers.

Conclusion: Dip Buying Is the Play

Walmart’s Q1 results are a snapshot of a company thriving in chaos. Near-term headwinds—modest sales growth, margin pressures—are temporary speed bumps on a road paved with e-commerce dominance, high-margin adjacencies, and grocery scale. The stock’s 58% YTD surge and BofA’s $120 target reflect investor confidence in its long-term trajectory.

For investors, the post-earnings dip—driven by EPS concerns—is a gift. Walmart’s structural advantages, combined with its ability to navigate tariffs and inflation, make it a buy at current levels. The next three years will reward those who see beyond the noise and bet on Walmart’s resilience.

The takeaway? Walmart isn’t just surviving—it’s reinventing retail. The time to act is now.