Walmart Inc. (WMT) Q3 FY2026 Earnings Analysis: Strong Beat Drives Raised Guidance

TLDR

Walmart delivered a robust Q3 performance with revenue of $179.5B (estimated $186.59B) and adjusted EPS of $0.62 (estimated $0.73), illustrating a revenue miss but solid operational momentum. The company raised full-year guidance significantly, with eCommerce surging 27% globally and operating income up 8.0% on an adjusted constant currency basis. Despite missing analyst estimates, the company's breadth of strength—especially in omnichannel execution, advertising momentum, and cash generation—supports a sustained market-share trajectory and disciplined capital deployment. Management signaled confidence in finishing the year strong, even as a near-term EPS gap remains a focal point for investors.

"The team is executing against a comprehensive plan to accelerate eCommerce, expand marketplace capabilities, and optimize costs while reinvesting in growth initiatives." — Walmart management

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Financial Performance

Revenue

• Q3 Revenue: $179.5 billion vs. $186.59 billion (estimated) - Miss by $7.09B or 3.8%
• Year-over-Year Growth: 5.8% (6.0% in constant currency)
• Sequential Performance: Up from $169.6B in Q3 FY2025, reflecting ongoing momentum
• Key Revenue Drivers:
  • Walmart U.S. led with $120.7B (up 5.1%), driven by 4.5% comparable sales growth
  • eCommerce acceleration across all segments: 27% global growth, with Walmart U.S. up 28%, International up 26%, and Sam's Club up 22%
  • Walmart International contributed $33.5B (up 10.8%, or 11.4% constant currency), benefiting from Flipkart's Big Billion Days timing shift
  • Sam's Club U.S. generated $23.6B (up 3.1%), with 3.8% comp sales growth excluding fuel
  • Strong transaction growth across all segments, with increased customer traffic and unit volumes

Profitability Metrics

• Adjusted EPS: $0.62 vs. $0.73 (estimated) - Miss by $0.11 or 15.1%
• GAAP EPS: $0.77 (includes $0.20 gain on equity investments, offset by $0.07 PhonePe charge and $0.02 legal settlement)
• Net Income: $6.1B (consolidated net income attributable to Walmart), up 34.2% YoY
• Operating Margin: Operating income decreased 0.2% on a reported basis but increased 8.0% on an adjusted constant currency basis
• Key Profitability Factors:
  • Gross margin expansion: Up 2 bps globally, with Walmart U.S. up 19 bps to 27.6%
  • Operating expense leverage challenges: Consolidated operating expenses increased 7.2%, deleveraging by 20 bps as a percentage of sales
  • PhonePe impact: $0.7B non-cash share-based compensation charge related to anticipated IPO significantly impacted International segment operating income
  • Advertising business surge: Global advertising up 53% (including VIZIO), with Walmart Connect U.S. up 33%
  • Membership income strength: Up 16.7% globally, contributing to improved profitability mix

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Operational Highlights

eCommerce Dominance: The quarter’s standout performance came from digital channels, with 27% global growth representing acceleration from recent quarters. Store-fulfilled delivery channels grew nearly 70% in the U.S., underscoring the effectiveness of Walmart's omnichannel strategy. Marketplace expansion and improved delivery speed contributed to market share gains across categories.

Walmart U.S. Momentum: The flagship segment delivered balanced growth with 1.8% transaction growth and 2.7% average ticket increase. The company gained market share across grocery, health & wellness, and general merchandise. Inventory management remained disciplined, with inventory up only 2.6% versus 5.1% sales growth, while maintaining healthy in-stock levels. Operating income grew 6.3%, faster than sales, reflecting improved eCommerce economics and business mix benefits.

International Complexity: While net sales grew strongly at 11.4% in constant currency, operating income declined 41.7% due to the $0.7B PhonePe share-based compensation charge. Excluding this one-time item, adjusted operating income grew 16.9% in constant currency. The timing shift of Flipkart’s Big Billion Days event to Q3 (from Q4 in prior year) benefited this quarter but will create a headwind in Q4. China and Walmex also contributed to growth.

Sam's Club Consistency: The warehouse club format continued steady performance with 3.8% comp sales growth (excluding fuel), driven by 3.9% transaction growth. Membership income grew 7.1% with improving member counts, renewal rates, and Plus penetration. The segment maintained disciplined expense management while investing in the member experience.

Strategic Investments Paying Off: The company’s investments in advertising technology, fulfillment capabilities, and marketplace infrastructure are generating returns. The global advertising business grew 53% (34% excluding VIZIO), becoming a meaningful profit driver. ROI stood at 14.8%, impacted by approximately 25 bps from the PhonePe charge but demonstrating effective capital deployment.

Cash Generation Strength: Operating cash flow reached $27.5B (up $4.5B YoY) and free cash flow hit $8.8B (up $2.6B), providing ample resources for growth investments and shareholder returns. The company repurchased $7.0B in shares year-to-date while maintaining a healthy balance sheet with $10.6B in cash.

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Forward Outlook

Near-Term Guidance (Q4 FY2026)

• Revenue Guidance: Not explicitly provided vs. $172.46B (estimated)
• EPS Guidance: Not explicitly provided vs. $0.68 (estimated)
• Management Commentary:
  • Expects a "strong finish to the year" based on current momentum
  • Q4 will face headwind from Flipkart's Big Billion Days timing shift (benefited Q3, will hurt Q4)
  • Continued eCommerce strength expected across all segments
  • Holiday season positioning described as strong with good inventory levels

Full-Year Fiscal 2026 Outlook

• Updated Revenue Target: 4.8% to 5.1% growth (constant currency) vs. 4.8% estimated - In-line to Beat
  • Previous guidance: 3.75% to 4.75%; Original guidance: 3.0% to 4.0%
  • Represents significant upward revision of approximately 100 bps at midpoint
• Updated EPS Target: $2.58 to $2.63 (adjusted) vs. $2.94 estimated - Significant Miss
  • Previous guidance: $2.52 to $2.62; Original guidance: $2.50 to $2.60
  • Includes $0.01 to $0.02 currency headwind
  • Based on FY25 adjusted EPS of $2.51, implies 2.8% to 4.8% growth
• Updated Operating Income Target: 4.8% to 5.5% growth (adjusted, constant currency)
  • Previous guidance: 3.5% to 5.5%; represents tightening to upper half of range
• Strategic Initiatives:
  • Continued investment in eCommerce fulfillment and delivery speed
  • Expansion of advertising platform capabilities, including VIZIO integration
  • Marketplace growth across all geographies
  • Store remodels and technology upgrades
  • Capital expenditures approximately 3.5% of net sales ($18.6B spent in nine months)
  • Supply chain optimization, particularly in Sam's Club segment

Guidance Analysis: The raised revenue guidance is encouraging and suggests management confidence in sustained momentum. However, the significant gap between the adjusted EPS guidance ($2.58-$2.63) and analyst estimates ($2.94) is notable. The 11-13% shortfall likely reflects the PhonePe charge impact, higher operating expenses, and conservative assumptions. The effective tax rate guidance of "mid to low-end" of the 23.5%-24.5% range (versus prior "approximately 23.5% to 24.5%") suggests some tax benefit.

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Investment Implications

For Long-Term Holders: Walmart's operational performance remains strong despite the headline misses versus analyst estimates. The company is executing well on its omnichannel strategy, gaining market share, and generating robust cash flows. The 27% eCommerce growth demonstrates the digital transformation is working, while the 8% adjusted operating income growth (constant currency) shows improving profitability. The raised full-year guidance, particularly the 100 bps increase in revenue growth expectations, signals management confidence. However, investors should note the EPS guidance remains well below Street expectations, suggesting either conservative guidance or structural margin pressures. The $7B in share buybacks year-to-date and strong free cash flow generation support the investment case for patient, long-term investors focused on total returns.

For Value Investors: The disconnect between operational performance (strong) and EPS results (weak versus estimates) creates complexity. The PhonePe charge is a one-time item that obscures underlying profitability. Adjusted operating income growth of 8% in constant currency is solid, and the improving eCommerce economics suggest margin expansion potential. The stock's valuation will depend on whether investors focus on the GAAP miss or the operational momentum. The 14.8% ROI, while down slightly from 15.1% last year due to increased capital deployment, remains healthy for a retailer of this scale.

For Growth Investors: The 27% eCommerce growth, 53% advertising growth, and market share gains across categories demonstrate Walmart is successfully competing in the digital economy. The company is taking share from both traditional retailers and pure-play eCommerce competitors. The investments in fulfillment, marketplace, and advertising infrastructure are creating a flywheel effect. However, the operating expense growth of 7.2% (outpacing revenue growth of 5.8%) raises questions about operating leverage. Growth investors should monitor whether the company can moderate expense growth while maintaining growth momentum.

For Income Investors: Walmart's cash generation remains exceptional, with operating cash flow up $4.5B and free cash flow up $2.6B year-over-year. The company has returned $7B through buybacks while maintaining dividend payments. The balance sheet is solid with manageable debt levels. However, income investors should note that the company is prioritizing growth investments and buybacks over dividend increases in the near term.

Risk Factors to Monitor:

1. Expense Management: Operating expenses grew 7.2%, faster than sales, suggesting deleverage risk
2. EPS Guidance Gap: The 11-13% shortfall versus analyst estimates for full-year EPS needs explanation
3. International Volatility: Currency headwinds and one-time charges create earnings unpredictability
4. Competitive Intensity: Maintaining 27% eCommerce growth will become increasingly difficult
5. Margin Pressure: Gross margin expansion of only 2 bps suggests limited pricing power despite inflation

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Summary

Walmart's Q3 FY2026 results present a nuanced picture: strong operational execution with concerning earnings misses versus expectations. The company delivered $179.5B in revenue (missing estimates by $7.1B) and $0.62 adjusted EPS (missing by $0.11), yet demonstrated impressive momentum with 27% eCommerce growth, 8% adjusted operating income growth in constant currency, and market share gains across categories.

The revenue miss appears largely due to overly optimistic analyst estimates rather than operational weakness, as the company grew 5.8% year-over-year and raised full-year guidance by 100 bps. The EPS miss is more concerning, driven by the $0.7B PhonePe charge, higher operating expenses, and operating expense deleverage. The 7.2% growth in operating expenses outpacing 5.8% revenue growth suggests margin pressure that management must address.

The raised full-year guidance—revenue growth of 4.8%-5.1% and adjusted EPS of $2.58-$2.63—demonstrates management confidence, though the EPS guidance remains significantly below Street expectations of $2.94. This gap warrants careful monitoring and suggests either conservative guidance or structural profitability challenges.

Key positives include exceptional eCommerce performance (27% growth globally), advertising business momentum (53% growth including VIZIO), strong cash generation ($8.8B free cash flow, up $2.6B), disciplined inventory management, and market share gains. The company's omnichannel strategy is clearly working, with store-fulfilled delivery up nearly 70%.

Key concerns include operating expense growth outpacing sales, the significant EPS guidance shortfall versus estimates, International segment volatility (operating income down 41.7% due to PhonePe charge), and modest gross margin expansion of only 2 bps despite the company's scale advantages.

Investment Recommendation: For long-term investors, Walmart remains a compelling holding based on operational strength, market share gains, and cash generation. The company is successfully navigating the retail transformation and building competitive advantages in eCommerce and advertising. However, near-term traders should exercise caution given the EPS miss and guidance gap. The stock's reaction will likely depend on whether investors focus on operational momentum (positive) or earnings shortfalls (negative). Management’s explanation of the EPS guidance gap and evidence of improving expense leverage in Q4 will be critical. The leadership transition from Doug McMillon to John Furner adds an element of uncertainty, though McMillon’s strategic direction provides reassurance.

Overall assessment: HOLD for existing investors with strong operational fundamentals offset by earnings execution concerns; CAUTIOUS for new investors until the EPS guidance gap is clarified and expense leverage improves.

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