Walmart (NYSE:WMT | WMT Price Prediction) beat adjusted EPS expectations at $0.81 against a $0.7413 estimate, grew revenue 5.94% to $187.94 billion, and raised full-year sales guidance to 4% to 5% from 3.5% to 4.5%. The stock still fell 9.82% over the past week, closing at $103.70, and is down 6.33% year-to-date.
On CNBC on Friday, Michael Zakkour of 5 New Digital argued the selloff is about sentiment rather than fundamentals. “Consumers are finally starting to pull back, and they’re getting a lot more choosy about where they spend and how they spend it,” he said, adding that “I think all three of them are going to have strong holidays. And in fact, I think they’ll be beneficiaries of this shift in this cautiousness. People aren’t going to buy up into premium or luxury in this market.”
He is partly right. The drawdown is a verdict on the guide, and the guide is the one that deserves attention.
Walmart’s Quarter Was Fine, but the Guide Is the Real Story
Walmart’s beat was heavily flavored by tariff refunds. Gross profit rate improved by 96 basis points to 25.4%, and management said much of that benefit will be passed back to shoppers rather than retained as margin.
You can see the tradeoff clearly in the next quarter. Q3 adjusted EPS is guided to 62 to 64 cents, and Q3 sales growth is expected at 3.0% to 3.75% in constant currency, with a timing shift of Flipkart Big Billion Days creating a headwind of over 100 basis points.
Then there is the spending line. Capex was raised to roughly 4% of net sales, and management flagged more than $2 billion of incremental fuel-related costs above original assumptions. Those decisions compressed the near-term earnings the market was pricing in.
The 8-K itself lays this out plainly in the SEC filing. The setup is a company deliberately choosing share gains over near-term margins, which is a fine strategy for a business trading at a P/E near 38, but only if you already believe the share gains will materialize.
Where Zakkour’s Trade-Down Thesis Actually Holds
Target (NYSE:TGT) is the clearest evidence for his view. Comparable sales grew 3.8%, with traffic up 3.6%, and the stock is up 73.84% year to date, a pattern consistent with a discerning, rather than broken, discretionary consumer.
Michael Fiddelke framed the momentum in the release, saying “Second quarter results build on the encouraging momentum we saw in the first quarter, giving us increasing confidence that our strategy is resonating with our guests.” That is a company where a choosier shopper chooses to walk through the door.
The home-improvement names complicate the picture. Home Depot (NYSE:HD) posted 1.7% comps and $4.92 in adjusted EPS, while Lowe’s (NYSE:LOW) delivered its fifth consecutive quarter of positive comp sales with $4.40 adjusted EPS, yet HD is down 13.35% over the past year, and LOW is down 13.75%.
Zakkour’s quote that “it’s hard to not love Walmart” and that Walmart and Amazon are gold standards is fair on the operating model. The market accepts the model and is repricing what a lower-margin, higher-capex version of it should earn through a soft holiday.
What to Watch Before You Decide Who’s Right
The rollback data will tell you a lot. Walmart U.S. had more than 11,000 rollbacks in the quarter, up from 7,200 at the end of Q1, and CFO John David Rainey said: “There is a bit of a cumulative benefit that comes when you lower prices.”
If those price cuts produce the durable share gains management describes, Q4 comps should accelerate above the Q3 guide. If they do not, the market will have correctly diagnosed a company paying full price for the same middle-income shopper Target is also winning.
Watch fuel too. Rainey said, “You can tell when fuel prices increase and got above $4 and perhaps there’s a psychological impact to that, that there are choices that consumers are making,” and that pressure lands hardest on Walmart’s core customer.
Zakkour is likely right that discount wins this holiday. The harder question is whether Walmart, at its current multiple and rising capex, wins enough to justify what shareholders were paying for at $131 three months ago. The Q4 report will settle it.
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