Walmart Q2 Preview: A Crucial Read on the U.S. Consumer, Tariffs—and an Emerging AI “Agent” Flywheel

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As the world’s largest retailer, Walmart (WMT) is the market’s clearest window into real-time U.S. consumption—and a frontline case study on tariff pass-through, pricing power, and the durability of value-oriented retail. It’s also becoming a stealth AI story: Walmart is consolidating dozens of AI “agents” into four “super agents,” pushing toward a simpler, action-oriented shopping experience, while advertising, data, and automation deepen the company’s digital flywheel. With Q2 results due before the open, investors will weigh resilient traffic and share gains against tariff-driven margin risk and a valuation that already discounts multi-year execution.

What the Street Expects

• Headline numbers: Consensus looks for EPS ~$0.74–$0.76 on revenue ~$176B (~4% y/y), with operating income ~+$8.7B (~10% y/y).
• U.S. comps: Street ~+3.9%; several trackers are brighter—Jefferies ~+4.7% and Edgewater constructive on July promo support.
• Skew of risks: RBC’s state-weighted data point to a modest top-line beat and as much as a ~10% adj. EPS beat via tariff-related pricing (RIM accounting). Offsetting that, multiple brokers flag a potentially cautious 2H tone as price increases flow through during back-to-school.

What to Watch: The Five Big Drivers

Tariffs → Gross Margin Trajectory. The single biggest swing factor. Recent quarters showed enterprise margin pressure as tariff costs crept higher. Watch Walmart U.S. gross margin, mix (grocery vs. GM), markdowns, and any talk of production shifts or category-level cost absorption.

Traffic vs. Ticket. Are value gaps widening and trade-down intensifying? Wolfe notes Walmart remains the price leader; a stable or rising traffic line would validate share gains.

Digital Flywheel: eCommerce + Advertising. Q1 hit an important milestone with eCommerce profitable (U.S. and global). Keep an eye on eCommerce growth (prior +22%), Walmart Connect (prior +31% U.S.; +50% global incl. VIZIO), and whether ads/membership again drive outsized operating-income contribution.

Automation & Speed. Network densification and sub-two-hour delivery growth (management previously cited sub-3-hour deliveries +91% y/y) lower last-mile costs and support mix-led OM expansion.

AI “Agents” & Fintech Optionality. Progress on consolidating AI agents into “super agents” (simpler UI, more autonomous actions) and any color on digital wallets or stablecoin exploration would bolster the long-term data/ads/services thesis.

Guidance: The Litmus Tests

OPCO is “anchored” to the high end of FY25 EPS guidance ($2.50–$2.60) and sees a path to upward revisions this print or next. UBS frames this quarter as “check the boxes” to preserve momentum and the multi-year algorithm (sales ~+4% with operating margin expansion). Key tells:

• FY25 guide movement (sales/OM/EPS)—even a small raise would validate stronger comps and tariff mitigation.
• Q3 cadence and 2H elasticity assumptions as shelf prices reset.
• OM trajectory back toward low-5% over time (vs. ~4.2% this year), via ads, membership, automation, and mix.

Q1 Recap: Momentum with Nuance

Q1 constant-currency sales grew ~4%, with Walmart U.S. comps ex-gas +4.5% and Sam’s Club U.S. +6.7%. Global eCommerce +22% and first-time profitability (U.S. and global) were standout milestones. Advertising surged (+31% U.S.; +50% global incl. VIZIO), and membership fee income rose sharply (enterprise nearly +15%). Management emphasized strong inventory positioning and reiterated the long-term aim to grow profit faster than sales, while cautioning that higher tariffs widen outcome ranges and could weigh on near-term margins if sharply escalated.

Street Setup & Sentiment

• Jefferies: Strong U.S. comp (4.7%) vs. Street (3.9%); wouldn’t be surprised by cautious 2H tone.
• Edgewater: Raising Q2 comps on promo support; outlook balanced by macro/tariff uncertainty.
• OPCO (Outperform, $115 PT): Sees scope for positive guidance cycle near term; model nudged higher, anchored to FY25 EPS high end.
• UBS (Buy, $110 PT): Focus on retaining momentum; debate shifting to FY27 EPS as multiple reflects a margin expansion runway (peak OM 6.1% in 2010 vs. ~4.2% this year).
• RBC: Scanner + transaction data suggest a modest sales beat; modeling a ~10% EPS beat with a modest guide raise.

Tariffs: The Consumer Wild Card

Management has telegraphed a tactical playbook—shift sourcing, absorb costs at the category level where appropriate, protect price leadership, and lean on higher-margin streams (ads, membership, data ventures) to offset gross margin headwinds. The “make-or-break” question this fall is elasticity: how much ticket/volume give-back occurs as higher prices filter broadly through staples and GM categories?

Valuation: Premium—With a Case

Walmart’s forward P/E ~35–36x (vs. ~25.5x five-year average) invites debate—especially versus Amazon ~28.5x ‘26 EPS. The bull case: a rarified combination of consistency, share gains in grocery/health & wellness, and structural OM expansion from ads, automation, and scale logistics; digital already ~20% of sales. The bear case: tariff-driven GM pressure, a slowing growth tape, a sub-1% dividend yield, and higher absolute debt—leaving less margin for error if 2H demand softens.

Bottom Line

Into Q2, the setup tilts constructive but watchful. Tracking data point to comps above consensus and a potential EPS beat, while guidance and tone will determine whether the Street leans into a renewed raise cycle or waits for clearer tariff visibility. If Walmart can hold margin mix (via ads/membership/automation), protect traffic with widening price gaps, and showcase tangible progress on AI agents and fulfillment speed, the multi-year thesis—profit growing faster than sales—stays intact. Conversely, a meaningfully more cautious 2H outlook or incremental GM pressure could cool a valuation that already bakes in a lot of execution. For a market craving clarity on the consumer, tariffs, and AI’s commercial edge, few prints will matter more.