Walmart (WMT) Q3 2026 earnings review
Profit Engine Diversifies: eCommerce & Ads Power Strong Beat and Guidance Raise
Walmart delivered a strong Q3, with accelerating revenue growth of 6.0% (cc) and adjusted operating income growth of 8.0% (cc), beating expectations and reinforcing its strategy of growing profits faster than sales. The performance was powered by a significant re-acceleration in eCommerce (+27%) and explosive growth in high-margin alternative revenue streams, particularly global advertising (+53%). These newer businesses are becoming a material part of the profit story, offsetting mix pressure from grocery and funding price investments. A large, one-time, non-cash charge related to its PhonePe subsidiary in India heavily impacted GAAP results but did not detract from the underlying operational momentum, which prompted the company to raise its full-year guidance for sales and profit.
🐂 Bull Case
The strategy to build high-margin businesses is paying off. Advertising (+53%) and Membership (+17%) now contribute roughly one-third of adjusted operating income, providing a powerful offset to retail margin pressures and funding investments.
Global eCommerce growth accelerated to 27%, matching a prior-year peak. The focus on delivery speed is a key driver, with 35% of U.S. store-fulfilled orders now arriving in under 3 hours, attracting and retaining higher-income shoppers.
Walmart continues to gain share in U.S. grocery and general merchandise, with Walmart U.S. comps remaining remarkably stable at +4.5%. The value proposition is resonating across all income levels, particularly higher-income households.
🐻 Bear Case
A $700 million non-cash charge at PhonePe caused International GAAP operating income to plummet 42%. While a one-time item, it highlights the potential for volatility and complexity within the international portfolio as subsidiaries mature towards IPOs.
The sales mix continues to shift toward lower-margin grocery and health & wellness, which outpaced general merchandise growth. This remains a structural headwind for core retail gross margins, increasing reliance on alternative profit streams.
⚖️ Verdict: 🟢
Bullish. The quarter provides strong evidence that Walmart's strategic pivot is working. The ability to grow adjusted profits faster than a robust 6% sales growth, fueled by the now-material contribution from ads and membership, is a significant achievement. This diversification creates a more resilient and profitable business model that can absorb shocks and invest in its core value proposition. The operational strength and guidance raise outweigh the noise from the one-time PhonePe charge.
Key Themes
Alternative Profit Streams Reach Critical Mass
The strategic push to diversify revenue is yielding significant results. In Q3, global advertising revenue surged 53% (including VIZIO) and membership income grew 17%. Management stated these high-margin businesses now represent approximately one-third of the company's consolidated adjusted operating income. This successful transformation provides a powerful offset to merchandise mix pressures in the core retail business and is the primary enabler for growing profits faster than sales.
eCommerce Re-accelerates, Driven by Speed
Global eCommerce sales growth accelerated to 27%, the seventh consecutive quarter above 20%. The key driver is speed and convenience. In the U.S., 35% of store-fulfilled orders were delivered in under 3 hours, with these expedited channels growing nearly 70%. This improved execution is enhancing the customer value proposition, particularly for time-sensitive, higher-income households.
International GAAP Profit Shock Highlights Portfolio Complexity
A stark data point contradicting the positive operational narrative was the 41.7% collapse in Walmart International's reported operating income, from $1.2B to $0.7B. This was caused by a $700 million non-cash, share-based compensation charge related to its Indian subsidiary PhonePe in anticipation of a potential IPO. While adjusted constant currency profit grew a strong 16.9%, the GAAP result highlights the potential for significant P&L volatility from Walmart's large, non-wholly owned international assets as they mature.
Winning Higher-Income Shoppers Without Alienating Core Base
Walmart continues to successfully execute a dual strategy. It reinforced its core value proposition with over 7,400 price Rollbacks amid moderating inflation (1.3% in the U.S.). Simultaneously, its investments in convenience and assortment are winning over more affluent customers. Management noted that upper and middle-income households are driving growth, with these cohorts responding to faster delivery options and an expanded marketplace assortment.
Merchandise Mix Remains a Headwind
The CFO explicitly stated that merchandise category mix in the U.S. 'remains a headwind' as sales growth in lower-margin grocery and health & wellness outpaced that of higher-margin general merchandise. While general merchandise sales were positive, this ongoing mix shift puts pressure on the core retail gross margin, increasing the company's reliance on the growth of its alternative profit businesses to drive overall margin expansion.
Investing in AI for a More Conversational Future
Management highlighted ongoing investments in artificial intelligence to enhance the customer experience. A new partnership with OpenAI will eventually allow customers to purchase items directly through ChatGPT. The long-term vision is to create an e-commerce experience that is more personalized, multimodal (voice, text, video), and contextual, anticipating customer needs rather than just responding to searches. Internally, AI is also driving efficiency, with AI-assisted tools helping to generate over 40% of new code.
Other KPIs
The company's largest segment demonstrated strong operating leverage, with profit growth of 6.3% outpacing sales growth of 5.1%. This was driven by a 19 bps expansion in gross profit rate, benefiting from strong inventory management (up only 2.6%), growth in membership income, and improved eCommerce economics. The performance shows the core domestic business is executing efficiently.
The business continues to be a powerful cash generator, with operating cash flow increasing by $4.5 billion year-to-date. This strength is due to higher operating income and favorable timing of payments. This robust cash flow provides significant flexibility to invest in the business while also returning nearly $13 billion to shareholders via dividends and buybacks so far this fiscal year.
Guidance
Decelerating. The implied Q4 growth of 3.75% to 4.75% represents a deceleration from Q3's 6.0% growth. This is primarily due to the timing shift of Flipkart's 'Big Billion Days' sales event, which benefited Q3 at the expense of Q4, as well as lapping a stronger prior-year comparison.
Accelerating. The implied Q4 growth range of 8% to 11% marks a significant acceleration from Q3's 8.0%. This reflects continued strong contributions from high-margin businesses and lapping prior-year wage investments at Sam's Club, demonstrating confidence in continued margin expansion.
Stable. The implied Q4 guidance of $0.67 to $0.72 represents YoY growth of 2% to 9%. The midpoint of $0.70 implies ~6% growth, which is roughly in line with the 6.9% growth seen in Q3, suggesting a stable earnings growth trajectory into year-end.