Final Thursday, August 21, ’25, reported their fiscal Q2 ’26 monetary outcomes (fiscal ’26 ends January ’26, so it’s primarily calendar ’25 outcomes we’re seeing), with a whiff on earnings per share, because of workmen’s comp and what are being referred to as normal legal responsibility claims, whereas income was a slight beat.
No query the costs round workmen’s comp and normal legal responsibility decreased working revenue from +4.5% – +5% y-o-y (year-over-year) development to a -0.5% yoy decline. EPS missed by 11%, as precise EPS was $0.68, whereas the estimate was $0.76.
That is probably proceed via Q3 ’26 per the convention name.
The inform previous to earnings was that annual fiscal ’26 EPS was decreased to 4% beginning in January ’25 (or simply after President Trump was elected) whereas the preliminary development for fiscal ’26 from final yr’s estimates about fiscal ’26 have been in search of +10% – +11% EPS development.
Operationally, Walmart’s outcomes regarded advantageous, that means the brand new rising development areas (the income flywheel) like Walmart Join and Walmart Promoting every grew 31% and 46% respectively, whereas common ticket grew +1.5% and site visitors grew 3.1%. Per the convention name notes, Walmart grew grocery, well being and wellness and. extra importantly, normal merchandise, yoy.
If you wish to know that Walmart stays advantageous operationally, merely observe yoy gross sales development vs yoy stock development. When stock begin to will get stacked up, cash-flow metrics begin to undergo. In fiscal Q2 ’26, Walmart grew yoy gross sales over yoy stock once more:
For comparability, in calendar ’21 and ’22 when all of retail (together with ) have been hit with an excessive amount of stock coming in after Covid, Walmart’s inventory worth fell from $53 to the excessive $30’s.
One constructive:
Walmart’s ahead income estimate revisions took an enormous soar after final Thursday’s earnings. That’s a plus.
Supply: LSEG EPS and income estimates
Earnings estimates moved little or no after final week’s earnings report, however the income estimates have began to maneuver increased once more.
Valuation
Most shorts or extra conservative long-only traders level to Walmart’s 35x earnings a number of for fiscal ’26, (in addition to the comparability of the 4% anticipated EPS development price for fiscal ’26) and conclude the inventory is overvalued, and with good motive.
Nonetheless, Walmart’s cash-flow-from-operations (CFFO) can also be fairly formidable, and at $95 per share, Walmart’s trailing-twelve-month (TTM) CFFO means WMT is buying and selling at simply 18x CFFO/PS, versus the 38x PE (earnings) a number of.
The cash-flow a number of isn’t low cost both, however it does permit readers to raised perceive the enterprise.
When it comes to earnings high quality – evaluating Walmart’s TTM CFFO to WMT’s TTM web revenue, right here’s the excel spreadsheet that exhibits Walmart’s cash-flow in relation to web revenue:
Once more, click-on and increase the spreadsheet, and look how free-cash-flow suffered from the stock construct in 2022, which was referenced above.
What’s attention-grabbing is that for the final 8 quarters, Walmart has averaged $2 in cash-flow from operations, for each $1 in web revenue.
Erin Lash, who plies her commerce at Morningstar and is a very-good retail analyst, thinks WMT’s honest worth is $64 per share, which is about 25% decrease than the place our valuation places Walmart’s worth.
The important thing metric for Walmart is the working margin: assuming that the common working margin for the retail large is 4.50% (this final quarter was 4.44%), and with the brand new flywheel income and supply-chain automation, let’s say “peak” Walmart working margin is 6%, or a 150 foundation level enchancment. If we assume $700 billion in income, which is a further $10.5 billion in working revenue, and assume 8 billion shares excellent, that’s a $1.31 or 51% improve in EPS from TTM EPS of $2.53 (over time) with assumptions being no income development and no shares repurchases.
Most shopper staples shares commerce at wealthy multiples, like a , Procter & Gamble, , and so on. The trade-off historically has been the upper worth (and valuation) is justified with constant and reliable earnings development that these shares generate over time, or to place it in investing or statistical jargon, the low normal deviation round EPS and income era. The world is all the time altering although: PG was hammered after 2008 after the buyer traded off from expensive reliable family manufacturers to low cost labels like Costco’s Kirkland. Have a look at Coca-Cola when Covid struck and the carbonated enterprise to stadiums and ballparks and nearly any sporting occasion simply collapsed.
Even on a 12 – 14 month foundation, trying into calendar 2026 as Walmart’s one-time bills finish and the tariff points settle out, the trail ahead for Walmart appears okay, and given Walmart’s enterprise mannequin, the retailer wins with recessions.
Abstract / Conclusion
At it’s core, Walmart is a merchandising juggernaut, pulling in good from suppliers and making them handy to buy for his or her clients, and with the intention to do that correctly and keep every-day low costs (EDLP) for his or her clients, they’re should run a really lean and low-cost operation. To long-term retail analysts, this isn’t actually a shock.
The tariffs and the workmen’s comp and one-time labor costs are more likely to lengthen for an additional quarter, however by Walmart’s fiscal This fall ’26 (January ’26 quarter), the working expense and margin stress ought to begin to fade.
In our earnings preview it was famous that Walmart was buying and selling at a couple of 10% valuation premium to the place we had honest worth for the inventory and that was a good name given the pullback within the inventory. Walmart’s 200-day shifting common is at $94.67 and under that the inventory might take a look at the April lows close to $83, if seasonal weak spot develops in September and October ’25.
It’s a long-term holding for us and stays a Prime 15 holding for purchasers. In truth, I’d like so as to add extra for purchasers if it trades under $90, however I don’t suppose it should.
None of that is recommendation or a suggestion, however solely an opinion. Previous efficiency is not any assure of future outcomes. All EPS and income estimates cited on right here, are usually sourced from LSEG.com. None of this info could also be up to date and if up to date might not be carried out so in a well timed style. Readers ought to gauge their very own consolation with market and account volatility and modify accordingly.
Thanks for studying.
***
Disclaimer: None of that is recommendation or a suggestion, however solely an opinion. Previous efficiency is not any assure of future outcomes. Readers ought to gauge their very own consolation with portfolio volatility and modify accordingly.
