Walmart Inc. - Fiscal 2026 Annual Results

What happened

Walmart reported total revenues of $713.2 billion for fiscal 2026, up 4.7% from the prior year, with net sales increasing $31.9 billion to $706.4 billion. Growth was driven by comparable sales gains of 4.3% at Walmart U.S. and 2.9% at Sam's Club U.S., reflecting strength in average ticket, transactions, and unit volumes across grocery, health and wellness, and general merchandise. eCommerce contributed approximately 4.3% to Walmart U.S. comparable sales and 3.3% at Sam's Club U.S., fueled by store-fulfilled pickup and delivery. Walmart International revenues rose 7.0%, though segment operating income declined $0.4 billion to $5.1 billion, primarily due to a $0.7 billion charge related to modification of PhonePe share-based compensation arrangements in contemplation of a potential public offering. Gross profit margin expanded 8 basis points to 24.2%, driven by disciplined inventory management and growth in higher-margin businesses, including digital advertising, though partially offset by mix shifts into lower-margin categories. Operating expenses as a percentage of sales increased 20 basis points to 20.9%, reflecting approximately $0.9 billion in higher self-insured general liability claims expense influenced by rising costs to resolve claims across retail industries, the PhonePe charge, and increased depreciation from capital investments. Operating income rose slightly to $29.8 billion, but operating margin compressed 13 basis points to 4.2%. Consolidated net income increased 10.5% to $22.3 billion, aided by a net gain of $2.1 billion in other gains and losses, primarily from changes in the fair value of equity and other investments. Diluted EPS rose to $2.73 from $2.41. Operating cash flow increased $5.1 billion to $41.6 billion, driven by higher operating income, lower cash tax payments, and timing of certain payments. Free cash flow rose 17.9% to $14.9 billion, even as capital expenditures increased $2.9 billion to $26.6 billion, focused on automation, supply chain, and customer-facing initiatives. The company returned $15.6 billion to shareholders through $7.5 billion in dividends and $8.1 billion in share repurchases.

Why it matters for investors

Walmart demonstrated continued momentum in its omnichannel strategy, with strong comparable sales growth and eCommerce penetration showing customer engagement remains robust. The 8 basis point gross margin expansion reflects the strategic shift toward higher-margin businesses such as digital advertising and membership programs, which are central to the company's long-term margin accretion goals. However, the 13 basis point contraction in operating margin highlights execution headwinds: the $0.9 billion spike in general liability claims expense signals rising industry-wide litigation costs, while the $0.7 billion PhonePe charge, though tied to a strategic fintech investment, weighs on near-term profitability. The increase in operating expenses as a percentage of sales, driven by these items and elevated depreciation, underscores the capital intensity of Walmart's automation and omnichannel investments. Despite these pressures, the company achieved 10.5% growth in net income, aided by equity investment gains, and generated strong free cash flow growth, demonstrating operational resilience. The $26.6 billion in capital expenditures, up $2.9 billion, reflects continued prioritization of automation, supply chain modernization, and technology to support long-term growth, though it contributed to a decline in ROI to 15.1% from 15.5%. Management's ability to expand gross margins and grow free cash flow while absorbing significant one-time charges and higher capex suggests underlying business health, but sustained operating leverage remains contingent on moderating claims expense and realizing returns on capital deployed. The company faces ongoing uncertainty from the dynamic tariff environment, with less than one third of U.S. sales imported, though it noted that future tariff impacts could be material and unpredictable.

Key highlights

Walmart U.S. comparable sales increased 4.3%, driven by growth in average ticket and transactions, with eCommerce contributing approximately 4.3%, primarily from store-fulfilled pickup and delivery. Sam's Club U.S. comparable sales rose 2.9%, with eCommerce contributing 3.3%, though fuel sales negatively impacted comparables by 1.9% due to lower fuel prices. Walmart International revenues grew 7.0% to $130.4 billion, supported by strong eCommerce growth of $6.3 billion, though operating income declined due to the $0.7 billion PhonePe share-based compensation charge. Consolidated gross margin expanded 8 basis points to 24.2%, driven by disciplined inventory management and higher-margin business growth, partially offset by mix shifts into lower-margin categories. Operating expenses increased 20 basis points as a percentage of sales to 20.9%, reflecting approximately $0.9 billion in higher self-insured general liability claims expense, the PhonePe charge, and elevated depreciation from capital investments. Operating income rose 1.6% to $29.8 billion, though operating margin compressed 13 basis points to 4.2%. Other gains and losses resulted in a net gain of $2.1 billion, primarily from changes in fair value of equity investments. Consolidated net income increased 10.5% to $22.3 billion, with diluted EPS rising to $2.73 from $2.41. Free cash flow increased 17.9% to $14.9 billion, even as capital expenditures rose $2.9 billion to $26.6 billion, focused on automation, supply chain, and omnichannel initiatives. The company returned $15.6 billion to shareholders through $7.5 billion in dividends and $8.1 billion in share repurchases. Membership and other income grew to $6.8 billion, driven by double-digit membership fee revenue growth globally. ROI declined to 15.1% from 15.5%, driven by higher average invested capital. For fiscal 2027, management projects capital expenditures of approximately $25 billion to $27 billion. The company faces ongoing uncertainty from tariffs, with less than one third of U.S. sales imported, though management noted potential material impacts from the dynamic tariff environment.

Management commentary

Management emphasized the company's financial priorities of growth through omnichannel expansion, margin improvement via productivity and business mix, and improved returns through disciplined capital allocation. Management noted that the company expects continued uncertainty from tariffs and trade restrictions, inflationary trends, currency fluctuations, macroeconomic swings, employment changes, and supply chain pressures, any of which may impact results. Management stated that while operating in a highly dynamic tariff environment, less than one third of what is sold in the U.S. is imported, with most imports coming from China, Mexico, Vietnam, India, and Canada, and that the company cannot predict with certainty the future impact of this environment on results, which could be material. Management highlighted that pricing and merchandising strategies in response to cost increases include absorbing cost increases instead of passing them to customers, reducing prices in certain categories, focusing on opening price points, and when necessary, passing cost increases on, as well as working with suppliers to reduce costs, focusing on private label brands, and securing supply chain capacity. Management noted that gross profit margin expanded due to disciplined inventory management and growth in higher-margin businesses globally, though partially offset by mix shifts into lower-margin categories and channel and format mix shifts in Walmart International. Management attributed the increase in operating expenses as a percentage of sales primarily to higher self-insured general liability claims expense in the U.S. of approximately $0.9 billion, influenced by rising costs to resolve claims across retail and related industries, a charge of $0.7 billion related to modification of certain share-based compensation arrangements for PhonePe, and increased depreciation related to capital investments. Management stated that the effective income tax rate increased to 24.4% from 23.4% primarily due to the PhonePe share-based compensation charge, which provided no tax benefit. Management noted that the increase in net cash provided by operating activities was primarily due to an increase in cash provided by operating income, lower cash tax payments, and timing of certain payments, and that free cash flow for fiscal 2026 increased due to these factors, partially offset by an increase of $2.9 billion in capital expenditures to support the omnichannel growth strategy. Management stated the company believes its sources of liquidity will continue to be sufficient to meet anticipated cash requirements and contractual obligations for at least the next 12 months and for the foreseeable future. Management announced approval of a fiscal 2027 annual dividend of $0.99 per share, an increase over the fiscal 2026 annual dividend of $0.94 per share, and a new $30.0 billion share repurchase authorization approved in February 2026 with no expiration date.

What to watch next

Investors should monitor:

• Management projects capital expenditures of approximately $25 billion to $27 billion for fiscal 2027, with a focus on technology, supply chain, and customer-facing initiatives, which will impact capital intensity and ROI.

• Management noted continued uncertainty from a dynamic tariff environment, which it cannot predict with certainty, and stated that future impacts could be material, requiring monitoring of pricing and merchandising strategies and gross margin trends.

• Management highlighted approximately $0.9 billion in higher self-insured general liability claims expense in fiscal 2026, influenced by rising costs to resolve claims across retail industries, which may persist and pressure operating margins if industry-wide trends continue.

• Management disclosed a $0.7 billion charge related to PhonePe share-based compensation arrangements in contemplation of a potential public offering, indicating potential near-term developments in this fintech subsidiary's structure or public market entry.

This summary is based solely on excerpts from the company's Form 10-K filing.