Walmart (WMT) Q1 2027 earnings review
Top-Line Beats, Cash Flow Bleeds
Walmart beat expectations on revenue (+7.3%, +5.9% cc) and adjusted EPS ($0.66, +8.2%), with global eCommerce reaccelerating to +26% and advertising surging +37%. But the cash flow story flipped: free cash flow swung to -$1.9B from +$0.4B last year as capital expenditures jumped 34% to $6.7B. Walmart U.S. comp decelerated to 4.1% from 4.5%, and implied brick-and-mortar comp turned negative at -1.2% as eCommerce now contributes ~530 bps of the comp. Sam's Club operating income excluding fuel fell 2.6%. FY27 guidance reaffirmed; Q2 OI growth implied to accelerate to +7-10% cc on easy comp (lapping last year's $450M claims charge).
🐂 Bull Case
Global eCommerce grew 26% with double-digit incremental margins in U.S. After hitting breakeven last year, the digital business is now a clear margin contributor. Marketplace sales up nearly 50% (best in 10 quarters).
Global advertising +37% (Walmart Connect +44% ex-VIZIO), membership fee revenue +17.4% globally. These structural tailwinds drive the +6 bps gross margin expansion and support the FY27 6-8% adj. OI growth guide.
Q2 guidance implies adj. OI growth of +7-10% cc, up from +5.1% in Q1. Driven by easy comp (lapping the $450M Q2 FY26 claims charge) and continuing business mix benefits.
🐻 Bear Case
Q1 FCF of -$1.9B (vs +$0.4B PY) is a $2.4B swing. CapEx jumped 34% to $6.7B as the omnichannel investment cycle intensifies. With CapEx guided at ~3.5% of $735B+ in FY27 net sales, this is a ~$25B annual investment headwind.
Walmart U.S. comp of 4.1% relies entirely on eCommerce (~530 bps contribution). Implied physical store comp is -1.2%, down from +1.0% a year ago. Average ticket grew just 1.1% (vs +2.8% PY)—consumer trading down in stores.
Operating income excluding fuel fell 2.6%; operating margin ex-fuel down 17 bps to 2.5%. Club-fulfilled delivery growth is creating deleverage. The 14.9% inventory build (fuel-driven) is also a yellow flag.
⚖️ Verdict: ⚪
Neutral. The revenue beat and eCommerce acceleration are real, and the Q2 guide implies OI re-acceleration. But the FCF burn, capex step-up, deteriorating in-store comp, and Sam's margin compression cloud the picture. This is a beat-and-reaffirm quarter, not a beat-and-raise. Underlying physical retail trends warrant monitoring.
Key Themes
eCommerce Profitable and Reaccelerating
Global eCommerce grew 26%, with Walmart U.S. eCommerce +26%, International +27%, and Sam's Club +23%. Walmart U.S. store-fulfilled delivery grew ~45%, with 36% of those orders expedited (under 3 hours). The business has 'far surpassed the breakeven level' in U.S. eCommerce per management, with 'roughly double-digit incremental margins.' This is the central growth engine and now self-funding rather than dilutive to overall margins.
Advertising and Membership Driving Mix
Walmart Connect U.S. advertising grew +44% ex-VIZIO (or +36% total Walmart U.S. ads). Globally, advertising +37% with strong Flipkart momentum at +32%. Membership fee revenue +17.4% globally, with Walmart+ posting record Q1 net adds and Sam's Club raising membership fees effective May 1. These high-margin streams now contribute meaningfully to the +6 bps gross margin expansion and explain why gross profit rate expanded despite 250 bps of fuel cost headwind to operating income.
International Growth Engine Broad-Based
Walmart International net sales up 18% reported (+10.1% cc), with operating income (cc) up 10.2%. China continued its expansion at +22.3% cc with eCommerce +31% and digital mix hitting 50%. Canada accelerated meaningfully to +7.4% cc (up from +5.0% in Q4) with eCommerce +38%. Walmex held steady at +4.1% cc. International eCommerce now 29% of segment sales (cc), up ~340 bps YoY. FX provided a $2.3B sales tailwind and $0.2B OI tailwind, a reversal from prior quarters' currency headwinds.
Walmart U.S. Share Gains Now Transaction-Led
Walmart U.S. transactions ex-fuel accelerated to +3.0% from +1.6% in the prior year, while average ticket decelerated from +2.8% to +1.1%. This is a meaningful shift: growth is now coming from more customers (true share gains) rather than higher prices. Management reported 'highest level of share gains in 5 years' in General Merchandise, with Marketplace sales up nearly 50% (best in 10 quarters). Private brand sales up double-digits with mix gaining 175 bps.
Free Cash Flow Burns $1.9B
Q1 free cash flow turned to -$1.9B from +$0.4B in the prior year, a $2.4B swing. Operating cash flow declined $0.7B (timing of inventory receipts), and capital expenditures jumped 34% to $6.7B. Management guides FY27 capex at ~3.5% of net sales, implying ~$25B for the year—a 6%+ increase over FY26's $26.6B... actually higher. Combined with the moderated buyback pace ($2.1B in Q1 vs $4.6B in Q1 FY26), management is signaling a less generous capital return environment near-term while investing heavily.
Brick-and-Mortar Comp Implied Negative
Walmart U.S. comp of 4.1% relies entirely on eCommerce, which contributed ~530 bps. This implies brick-and-mortar comp of approximately -1.2%, deteriorating from +1.0% a year ago. The trend has been steadily worsening across quarters. Management attributes the headline deceleration to the 100 bps pharmacy maximum fair pricing impact, but pharmacy alone doesn't explain a 220 bps degradation in implied physical store performance. Combined with average ticket falling to +1.1% (vs +2.8% PY), this suggests the in-store consumer is under more pressure than headline numbers indicate.
Sam's Club Margin Compression
Sam's Club operating income excluding fuel was $515M, down 2.6% from ~$529M, with operating margin ex-fuel falling 17 bps to 2.5%. Gross profit rate ex-fuel down 12 bps; operating expense rate ex-fuel up 26 bps. The driver: rapidly scaling club-fulfilled delivery (up over 90%) is creating deleverage as fulfillment costs outpace gross profit gains. Sam's also implemented a membership fee increase effective May 1—a margin offset that won't fully show up until Q2+. Comp sales ex-fuel of 3.9% are the slowest since FY26Q3 and well below the 6.7% peak in Q1 FY26.
Inventory Builds Ahead of Sales
Global inventory grew 8.9% reported (+7.8% cc), faster than net sales cc growth of 5.7%. Walmart U.S. inventory was up 8.0% versus 4.5% sales growth—nearly 2x the rate. Management attributes this to 'timing of receipts and inventory tied to accelerated unit volume trends, primarily in grocery,' and noted inventory quality is strong. But sustained outpacing of sales raises markdown risk if unit demand moderates. Sam's Club inventory +14.9% is more easily explained (fuel volumes and upstreaming partnership).
Pharmacy Pricing Headwind Bites Hardest in Q1
The Maximum Fair Pricing legislation that took effect January 1 created a ~700 bps negative impact on Walmart U.S. Health & Wellness comp and ~100 bps headwind to total Walmart U.S. comp. Pharmacy script counts still grew mid-single-digits with share gains, but lower reimbursement rates are now flowing through the P&L in full. This is structural for FY27—the headwind will persist all four quarters before lapping in FY28.
Buyback Reload but Slower Pace
In February 2026, Walmart announced a new $30B repurchase authorization replacing the prior program. But Q1 buyback pace moderated to $2.1B (16.6M shares at $125.51 avg) versus $4.6B in Q1 FY26 when management was 'opportunistic' on lower share prices. Combined with the FCF burn, this signals capital return will be more measured during the peak investment cycle. $28.2B remaining on the new authorization.
Other KPIs
Adjusted operating income $6.0B, +5.7%. Gross profit rate up 29 bps to 27.8% (business mix from advertising, merchandise mix as GM and grocery outgrew health & wellness). But operating expense rate deleveraged 56 bps to 23.5% on higher depreciation (capex investments) and healthcare costs. Net: a 6 bps adj. operating margin gain. The composition matters—gross margin is structurally improving while opex is structurally pressured.
Reported operating income up 23.9% on FX tailwinds; constant currency growth of 10.2% benefited from improved eCommerce economics, business mix changes (advertising at Flipkart up 32%), and lower eCommerce losses. Partially offset by strategic investments in Canada and Mexico. Operating margin cc held flat at 4.3% as format mix changes and growth investments absorbed mix improvements.
A standout line item, up from $636M. Walmart+ fee revenue grew double-digits with record Q1 net adds, but the bulk of the 45.6% jump appears to be 'other income benefits from miscellaneous items' (per management). This is one of the less-visible levers boosting Walmart U.S. operating income—worth monitoring for sustainability.
First decline in this segment since FY26Q2's claims-affected quarter. Operating margin ex-fuel of 2.5% is down 17 bps. Membership and other income grew 11% (membership fee revenue +5.6%, other items boosting), but couldn't offset the delivery-cost deleverage. The May 1 membership fee increase will provide a tailwind starting Q2.
Trailing-12-month ROI declined primarily due to higher average invested capital (capex) and ~45 bps drag from discrete items including 23 bps from the PhonePe non-cash share-based compensation charge. Underlying business returns are stable to slightly improving—the optical decline is largely capex-driven and PhonePe-driven.
Guidance
Decelerating slightly from Q1's +5.7% net sales cc actual. On a $175.8B base, this implies Q2 net sales cc of $182.8B to $184.6B. Reasonable given the Q1 momentum and continuing tailwinds in eCommerce, advertising, and international—though pharmacy will continue to weigh on Walmart U.S.
Accelerating meaningfully from Q1's +5.1% adj. OI growth cc. The acceleration is largely mechanical: Q2 FY26 included a $450M general liability claims charge that crushed comparable operating income. Adjusted OI base of $7.9B for Q2 FY26 already excludes most of this. Even so, the guide implies real underlying improvement as advertising/membership benefits compound and fuel cost pressures may ease.
Versus $0.68 in Q2 FY26, implying +5.9% to +8.8% growth—roughly in line with Q1's +8.2%. Midpoint $0.73 reflects modest year-over-year EPS expansion despite tougher comp.
Reaffirmed from February. With Q1 cc growth of +5.7% and Q2 guidance midpoint of +4.5%, H1 averages ~5.1%. To hit the FY midpoint of +4.0%, H2 must average ~3.0%—an implied deceleration. This suggests management sees the eCommerce/advertising tailwinds moderating, the pharmacy headwind compounding, or simply a conservative posture given tariff and macro uncertainty.
Versus $2.64 in FY26, implying +4.2% to +8.0% growth. Q1 actual $0.66 + Q2 mid $0.73 = $1.39 implied H1. That leaves ~$1.41 for H2 vs $1.36 in PY = +3.7% H2 growth—again, deceleration from the H1 pace. Reaffirmation despite a Q1 beat is a yellow flag for second-half conviction.
On the FY27 net sales guidance midpoint of ~$735B, this implies ~$25.7B in capex—slightly higher than FY26's $26.6B reported but consistent with prior guidance ratios. Q1 already at $6.7B suggests the company is front-loading some of the investment, which contributed to the Q1 FCF burn.
Key Questions
In-Store Comp Trajectory
Walmart U.S. eCommerce contributed ~530 bps to comp, implying brick-and-mortar comp of -1.2%, down from +1.0% a year ago. How much of this is genuine in-store weakness versus mix shift accounting? What are physical store transactions and traffic doing?
Sam's Club Margin Recovery Path
Operating income ex-fuel fell 2.6% as club-fulfilled delivery scaled. The May 1 membership fee hike will help, but what's the path back to operating margin expansion? Is the segment trading near-term margin for long-term member acquisition?
FY27 H2 Deceleration Implied in Guidance
Q1 actual revenue cc +5.7% and Q2 guide +4.5% midpoint imply H2 net sales growth of ~3.0% to hit the FY +4.0% midpoint. What's driving the implied H2 deceleration—pharmacy headwind compounding, tariff impact, lapping eCommerce strength, or macro caution?
Capex Cycle Duration
Q1 capex of $6.7B was up 34% YoY. With FY27 guided at 3.5% of net sales, what's the trajectory beyond FY27? When does the investment intensity normalize, and what should investors expect for FCF growth?