Why Walmart’s Structural Strength Makes It a Must-Hold Retail Stock Despite Tariffs

Walmart’s Q1 2025 earnings report delivered a masterclass in operational resilience, proving that the retailer’s structural advantages—e-commerce profitability, diversified revenue streams, and unmatched grocery dominance—are more than capable of weathering tariff-driven headwinds. While investors may be spooked by near-term margin pressures, the data underscores that Walmart’s defensive qualities and long-term growth drivers make it a compelling buy at current levels. Here’s why this is a generational opportunity.

The E-Commerce Turnaround: Profitability as a New Baseline

Walmart’s e-commerce segment delivered its first-ever profitable quarter in Q1, a milestone that should not be underestimated. U.S. e-commerce revenue rose 21%, extending its 12-quarter streak of double-digit growth, while global e-commerce surged 22%. Crucially, this growth is now translating into profits, driven by improved delivery economics, reduced markdowns, and the expansion of high-margin businesses like Walmart Connect, its advertising division.

Walmart Connect’s global revenue jumped 50% year-over-year, with U.S. advertising alone up 31%. This segment isn’t just a side hustle—it’s a critical lever for margin expansion. When combined with the third-party marketplace and Walmart+, these high-margin services now account for $10 billion in annualized revenue, a figure that’s growing faster than the core business.

The stock’s recent dip to the $90–$92 range has created a buying opportunity, especially as these revenue streams gain traction. Walmart’s e-commerce and advertising units are now fully operational profit engines, not just experiments.

Grocery Dominance: A Tariff-Proof Moat

Walmart’s 60% grocery sales mix is its secret weapon in a world of rising costs. While tariffs on electronics, toys, and select food items (bananas, avocados) are squeezing margins, groceries remain largely insulated. Two-thirds of Walmart’s U.S. inventory is domestically sourced, and its scale in everyday essentials ensures it can absorb costs without passing them to consumers—unlike smaller competitors.

CEO Doug McMillon emphasized that Walmart’s “everyday low prices” strategy isn’t just a slogan; it’s a strategic imperative. Even as tariffs force price increases in non-grocery categories, the company’s focus on food affordability retains customer loyalty. This is why U.S. comparable sales rose 4.5% despite broader consumer spending slowdowns.

Operational Agility: Navigating Tariffs Without Sacrificing Growth

Walmart’s inventory discipline is another unsung hero. Gross margins expanded 12 basis points to 24.2%, thanks to smarter inventory management and fewer markdowns. The company is ordering conservatively—prioritizing high-demand items—but hasn’t canceled orders, a sign of confidence in its supply chain.

Meanwhile, the $4.6 billion in share repurchases in Q1 alone signals management’s belief in the stock’s value. With a forward P/E of 36x, Walmart trades at a premium, but this reflects its ability to grow at mid-single-digit rates in a stagnant retail environment.

The Bottom Line: Buy the Dip, Own the Future

Walmart reaffirmed its fiscal 2026 guidance of 3–4% sales growth and $2.50–$2.60 EPS despite tariff uncertainty—a bold move that underscores its confidence. The stock’s pullback post-earnings has created a rare entry point.

While valuation multiples are elevated, they’re justified by Walmart’s structural strengths:
1. E-commerce profitability is no longer aspirational.
2. Advertising and services are high-margin growth engines.
3. Grocery dominance provides a recession-resistant cash flow.

Investors should view dips below $90 as opportunities to accumulate a stock that’s built to outperform in both good and bad times. Walmart isn’t just surviving tariffs—it’s positioning itself to dominate the next decade of retail. The time to act is now.