Walmart Crushes Q3 Earnings

If there were any lingering doubts about who wears the crown in the global retail kingdom, Walmart (WMT) just silenced them(they are the highest revenue retailer globally after all). In a quarter that saw the announcement of a historic leadership transition, the Bentonville giant delivered a beat and raise performance that defied broader economic jitters.

With revenue climbing, margins expanding, and a digital business that is growing at a breakneck pace, Walmart is proving that its massive investments in technology and automation are finally paying dividends. But beyond the headline numbers lies a fascinating story of a changing American consumer, a strategic pivot to high-margin revenue streams, and a company that is fundamentally different from the big box retailer of the past.

The Headline Numbers: A Beat and Raise

Walmart didn’t just clear the bar; they raised it. The company reported consolidated revenue of $179.5 billion, a robust increase of 5.8% (or 6.0% in constant currency). This growth wasn’t fueled by price hikes alone; it was driven by genuine demand, with positive transaction counts and unit volumes across the board.

The bottom line was even more impressive. Adjusted operating income surged 8.0%, outpacing sales growth. This is what you want to see as an investor—profits growing faster than revenue—and it signals that Walmart is becoming more efficient. Adjusted Earnings Per Share (EPS) landed at $0.62, comfortably beating Wall Street expectations and growing nearly 7% year-over-year.

Fueling this optimism, management raised their full-year guidance. They now expect fiscal year 2026 net sales growth of 4.8% to 5.1% (up from the previous range of 3.75%–4.75%) and adjusted operating income growth of 4.8% to 5.5%.

All that meant that the stock was up 6.5% on a day where the broader market was tanking.

What’s Going Right: The Three Pillars of Growth

1. The eCommerce Explosion

For years, critics argued that Walmart couldn’t catch Amazon. While they may not have overtaken them yet, they are sprinting. Global eCommerce sales skyrocketed 27% in the quarter. This wasn’t a fluke driven by one region; every single segment—Walmart U.S., Sam’s Club, and International—posted digital growth above 20%.

• Speed Kills: Walmart is leveraging its massive store footprint to fulfill orders faster than ever. In the U.S., 35% of digital orders were delivered in under three hours.
• Marketplace Momentum: The third-party marketplace grew 17%, with high-margin categories like automotive, toys, and electronics growing north of 40%.

2. The Profit Flywheel: Ads and Memberships

Walmart is quietly transforming from a retailer into a media and tech platform. The company’s global advertising business grew a staggering 53% (aided by the VIZIO acquisition). Even excluding VIZIO, Walmart Connect in the U.S. grew 33%.

• Why this matters: Advertising has vastly higher margins than selling groceries. This extra profit allows Walmart to keep prices low on milk and eggs, crushing competitors who don’t have a side hustle in ad tech.
• Membership: Membership income rose 17%, with Walmart+ seeing double-digit growth. The company posted its strongest quarter ever for net member additions, proving that customers are willing to pay for convenience.

3. International is a Powerhouse

Walmart International is no longer a drag on results; it’s a growth engine. Sales jumped 11.4% in constant currency, driven by three key markets:

• India (Flipkart): The Big Billion Days event was a monster success, recording over 1 billion sales in a single day and processing 700 orders per second at its peak.
• China: Sales increased 22%, fueled by the incredible popularity of Sam’s Club and a 30%+ jump in online sales.
• Mexico (Walmex): Continued steady growth despite some investment headwinds.

What’s Going Poorly: The Headwinds

No quarter is perfect, and there were a few blemishes in the report that investors should note.

1. The PhonePe Charge

On a GAAP basis, operating income actually decreased by 0.2%. Why? The company took a roughly $700 million non-cash charge related to PhonePe, its payments subsidiary in India. This charge was tied to share-based compensation in anticipation of a potential IPO. While this hurts the headline GAAP number, savvy investors will view this as a good problem—it signals that PhonePe is maturing and preparing for a public market debut, potentially unlocking massive value down the road.

2. Merchandise Mix Pressure

Walmart is still battling mix issues. While higher-margin general merchandise (like clothes and home goods) is improving, low-margin categories like grocery and health & wellness are growing faster. This creates a natural drag on gross margins. Management is offsetting this with ad revenue, but it remains a structural challenge especially if this signals a weaker consumer who spends on the necessities but not the nice to haves.

3. Regulatory Headwinds in Pharmacy

During the call, CFO John David Rainey flagged a new risk: the Maximum Fair Pricing legislation set to take effect in January. This regulation will impact the Health & Wellness business, specifically pharmacy comps. While this sector has been a steady grower, investors should brace for a potential soft patch in Q4 and early 2026 as the company navigates these new pricing caps.

The Consumer Health Check: Who is Shopping at Walmart?

Walmart offers potentially the best barometer for the American economy, and the reading from Q3 is clear: The consumer stays resilient, but divided.

The Trade-Down Phenomenon Continues

Management explicitly stated that growth is being driven primarily by upper and middle-income households who aren’t typically their bread and butter consumer.

• The Wealth Effect: Affluent shoppers, perhaps tired of inflation at specialty grocers, are flocking to Walmart. They aren’t just buying beans and rice; they are shopping for fashion and home goods.
• Income Bifurcation: CFO John David Rainey highlighted a sobering statistic: the disparity in wage growth between low and high-income groups is the widest it has been in a decade. While high earners spend freely, lower-income families are under pressure, focusing intensely on value and necessities.

Dissecting the Government Shutdown Fears

Many investors entered the quarter worried about macro disruptions, including potential government shutdowns or labor strikes.

• The Reality: While management did not cite a specific federal government shutdown as a material impact in Q3, they did spend significant time discussing the last year’s port strike.
• The Port Strike Impact: Interestingly, the strike was discussed as a comparison headwind for Sam’s Club. In the prior year, shoppers panic bought goods ahead of potential strikes and storms, inflating last year’s sales numbers by about 120 basis points. This made year-over-year comparisons tougher for Sam’s Club this quarter (which still managed a respectable 3.8% comp). The takeaway? Walmart’s diversified supply chain allowed it to navigate these potential crises without significant inventory dislocations this year.

Inside the Analyst Q&A: Key Takeaways

The Q&A session offered a glimpse into the strategic thinking in Bentonville. Here is what matters:

1. The Agentic AI Revolution

This wasn’t just buzzword bingo. Outgoing CEO Doug McMillon and incoming CEO John Furner spoke passionately about Agentic AI—artificial intelligence that takes action. This seems to be the new discussion topic around payment processors and retailers of all sorts.

• Sparky the Shopper: They described a future where the in-app digital agent (“Sparky”) anticipates your needs. Imagine an AI that knows you usually buy detergent every six weeks and automatically adds it to your cart or asks if you need it. I mean, to me that sounds pretty annoying but I guess some could find it useful. I already hate when Alexa recommends it might be time to re-order something on Amazon, I don’t want that to become the norm.
• Coding Efficiency: McMillon dropped a stunning stat: 40% of new code written at Walmart is now AI-generated or assisted. This efficiency is allowing them to move faster than legacy competitors. That’s great and all but that does make the job equation seem dire for some. If AI is starting to do all this stuff then where are all these jobs coming from and who’s going to have money to buy crap from Walmart?

2. Tariffs: The Elephant in the Room

With geopolitical tensions rising, analysts pressed on the impact of potential new tariffs.

• The Defense: Management sounded confident. They acknowledged tariffs play a role but emphasized their diversified sourcing. They noted they are seeing relief on goods not grown in the U.S. (referring to certain imports which recently got reduced tariffs) and have managed through tariff regimes before. Essentially, Walmart’s massive scale allows it to absorb or mitigate these costs better than smaller rivals, potentially turning a trade war into a market share opportunity.

3. The Leadership Handoff

The call served as a passing of the torch from Doug McMillon to John Furner. The transition appears seamless. Furner is a 32-year veteran who has run Sam’s Club and Walmart U.S. effectively. The analyst community treated this news with calm approval, viewing it as a sign of stability rather than disruption.

Is WMT a Buy at All-Time Highs?

With the stock hitting record highs and the company announcing a move to the NASDAQ, is it too late to buy?

The Bull Case

1. Defensive Growth: Walmart wins in both economic climates. If the economy tanks, trade-down traffic accelerates. If the economy booms, they retain the high-income shoppers they’ve recently acquired. They certainly wouldn’t be immune to a stock correction but the company has generally been more insulated during previous recessions.
2. Tech Valuation: As Walmart grows its ad and data businesses, it probably deserves a higher valuation multiple. It is no longer just a retailer; it is a platform. The question is whether or not the current valuation is a bit high.
3. Automation: With 50% of fulfillment center volume now automated, Walmart is building a structural cost advantage that only Amazon can likely compete with.

The Bear Case

1. Valuation: The stock is priced for perfection. At these levels, any slip-up in execution or a slowdown in the U.S. consumer could lead to a pullback. At a 40x multiple, the stock is priced as high as its ever been and that’s pricy for a retailer even if they are the biggest one and have a growing higher margin tech-adjacent business which should improve margins. This is a stock that traded below 25x normalized earnings prior to 2024 and below 20x before the pandemic. Now forward earnings multiples are in the high 30s so certainly more room to fall if a recession were to happen and multiples contract even if they still continue growing.
2. Regulatory Risks: The pharmacy pricing legislation reminds us that Walmart is subject to political winds that can cap growth in key areas. It’s not the end of the world for them but anything that impacts margins on such a high valuation could be a concern.

The Verdict

Walmart is a hard stock to ignore, but patience is key. The beat and raise was great but the stock is already richly valued. For a long-term portfolio, Walmart offers a rare combination of safety, dividend growth, and potential for upside as their ad business and international businesses start to grow and they become more than just a retailer. Some of their biggest physical competitors like Target are struggling and Walmart and Costco are taking market share from most others.

However, I can’t see myself starting a position in Walmart at this valuation. It’s certainly rich so I’d rather wait for a small correction to start a position. If I were to start a position, I’d  consider a dollar-cost averaging strategy because this is a company that I think will be around for quite some time. I’d buy a starter position now to capture the momentum from the guidance raise, and look to add aggressively on any dips related to general market volatility or fears over consumer spending. Walmart has proven it is the titan of retail for a reason—and under John Furner, it looks ready to keep that going.

Disclosure: This is not investment advice. Please talk to a qualified financial professional before taking any investment advice.