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Walmart (WMT -9%) is heading sharply lower following its Q2 (Jul) report this morning. Adjusted EPS was meaningfully better than expected and revenue increased 5.9% yr/yr (+5.1% CC) to $187.9 bln, ahead of analyst expectations. However, the Q3 (Oct) outlook was disappointing, with downside EPS guidance of $0.62-0.64 and CC revenue growth of +3.00-3.75%, marking the third consecutive quarter of downside EPS guidance. WMT raised its FY27 outlook, but the increase appears largely to reflect the Q2 upside, which was itself aided by tariff refunds. The weaker Q3 outlook and softer Walmart US comps are overshadowing the strong Q2 headline results.

• Walmart US: Walmart US comps (excl fuel) increased +2.6%, below internal expectations and down from +4.1% in Q1, +4.6% in Q4, and +4.5% in Q3. Management attributed the shortfall primarily to weaker health and wellness sales, with pharmacy deflation related to new maximum fair price regulation creating a 125-basis-point headwind to comps.
• Price investment: Walmart delivered more than 11,000 rollbacks during Q2, up sharply from 7,200 at the end of Q1. Management continues to invest heavily in price because consumers need greater value and because lower prices drive market share gains over time. WMT said its price gaps versus conventional US grocers remain strong and continue to widen.
• Consumer pressure: Management noted incremental pressure on consumers as fuel prices moved higher, particularly once gasoline prices exceeded $4 per gallon. The pressure became more apparent in June, reinforcing Walmart's decision to lean heavily into lower prices.
• Sam's Club / Intl: Sam's Club US comps (excl fuel) increased +4.4%, improving from +3.9% in Q1, +4.0% in Q4, and +3.8% in Q3. Growth was driven by higher transactions and unit volumes, with strength in grocery and general merchandise. eCommerce sales increased 26%. Walmart International sales increased 12.8% yr/yr (+7.9% CC) to $35.2 bln, although growth slowed from 18.0% (+10.1% CC) in Q1.
• Q3 outlook: Q3 adjusted EPS guidance of $0.62-0.64 and CC revenue growth of +3.00-3.75% represent the primary disappointment. The revenue outlook implies a meaningful deceleration from Q2's +5.1% CC growth and marks the third consecutive quarter in which WMT has provided downside EPS guidance.

Briefing.com Analyst Insight

Walmart's underlying business remains healthy, but today's weakness reflects a meaningful disconnect between a strong Q2 headline and a disappointing forward outlook. The EPS and revenue beats were solid, but the Q2 earnings upside benefited from tariff refunds, which likely limits the durability investors assign to the beat. At the same time, the Walmart US comp of +2.6% was lackluster relative to recent quarters. While management continues to point to healthy core merchandise trends, transaction growth, widening price gaps, and ongoing market-share gains, investors appear more focused on the combination of softer US comps and the sharp deceleration embedded in Q3 guidance. The aggressive price investment is strategically positive for long-term share gains, but it also creates near-term pressure as Walmart responds to a consumer that is becoming more sensitive to higher fuel prices. After Target's (TGT) stronger report yesterday, Walmart's softer US trends and disappointing Q3 outlook are likely to be viewed as a letdown.