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Why Walmart's Strong Earnings Signal a Buy Opportunity Amid Tariff Headwinds

Henry RiversMonday, May 12, 2025 4:51 am ET

32min read

Walmart’s recent earnings report, released on May 12, 2025, delivered a stark rebuttal to the notion that the retail giant is merely a relic of the brick-and-mortar era. Despite ongoing tariff pressures and a volatile macroeconomic backdrop, Walmart’s Q1 2025 results underscored its evolution into a high-margin, tech-driven retail titan. With stock hitting an all-time high of $64 post-earnings—a 7% jump—and year-to-date gains of 22%, the market is pricing in a transformative story. Yet skeptics fixating on short-term tariff risks or minor near-term margin headwinds are missing the bigger picture: Walmart’s long-term structural advantages in retail media, automation-driven efficiency, and e-commerce resilience are creating a moat that’s widening relative to peers. Here’s why this is a compelling buy opportunity.

1. Retail Media: The High-Margin Engine Igniting Growth

The most overlooked aspect of Walmart’s transformation is its retail media network, which grew by 24% year-over-year globally, with U.S. ad revenue surging 26%. This segment now rivals Amazon’s advertising machine, leveraging Walmart’s vast consumer data and its third-party marketplace, which now hosts over 420 distinct items. The kicker? This business is margin-accretive. Walmart noted that a full third of its operating income growth in the quarter came from newer businesses like retail media and e-commerce.

Investors should note: This isn’t just a U.S. story. In Mexico, marketplace sellers expanded by over 50%, with item counts rising nearly 80%. As Walmart scales its platform globally, this segment’s growth could eclipse traditional retail metrics in profitability.

2. Margin Stability: Automation and Operational Discipline

Walmart’s margin resilience has been a quiet triumph. Despite a 6% revenue jump to $161.5B, the company reduced global inventory by 2.7% through automation and better inventory management. Return on assets (ROA) hit 7.9%, while ROI climbed to 15%, signaling smarter capital allocation.

Crucially, Walmart’s cost-cutting isn’t indiscriminate. It’s relocating corporate workers to Bentonville, closing underperforming Walmart Health clinics, and reinvesting savings into high-growth areas like its Vizio acquisition—a $2.3B bet to enhance data-driven ad offerings. Even as peers like Target and Kohl’s struggle with overstocked inventories, Walmart’s automation and lean operations are creating a margin moat.

3. E-Commerce Penetration: The Shift to Delivery Dominance

Walmart’s e-commerce surge isn’t slowing. U.S. e-commerce revenue jumped 22% year-over-year, with delivery volume now surpassing store pickups—a milestone reflecting shifting consumer preferences toward convenience. Global e-commerce sales rose 21%, driven by the Walmart+ subscription service and its third-party marketplace.

Even in a tough apparel and home goods market, Walmart’s focus on premium private-label brands (e.g., Love & Sports) and in-store remodels are boosting foot traffic. Same-store sales rose 3.8% in the U.S., while Sam’s Club saw a 4.4% increase.

Tariff Headwinds? Yes—But Walmart’s Scale Absorbs the Pain

Critics point to tariff-related costs and potential margin pressures in 2025. Fair enough—Walmart isn’t immune to macro risks. But here’s why it’s better positioned than peers:
- Deflationary pricing: Walmart achieved mid-single-digit deflation in general merchandise and low-single-digit food inflation, aided by price rollbacks.
- Global diversification: Its Mexico and e-commerce markets are offsetting U.S. macro softness.
- Scale advantage: Walmart’s $600B+ annual revenue base allows it to negotiate supplier terms and absorb costs in ways smaller players can’t.

The stock’s recent dip (if any post-earnings—though it actually rose sharply) is a buying opportunity. Even at $64, Walmart trades at just 15x forward earnings, a discount to Amazon’s 50x and Target’s 20x.

The Bottom Line: A Buying Opportunity in Disguise

Walmart’s Q1 results weren’t just about beating EPS or revenue targets. They proved that its long-term bets—retail media, automation, and omnichannel dominance—are paying off. The stock’s post-earnings surge reflects investor recognition of this, but skeptics focused on short-term noise are missing the forest for the trees.

With a 22% YTD outperformance versus the S&P 500, Walmart is already rewarding believers. For those who view tariffs as a temporary headwind, now is the time to bet on a company that’s turning retail’s biggest challenges into its greatest advantages.

Act now—Walmart’s future is now.

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