Walmart’s sales and earnings rose in the first quarter of fiscal year 2026 due to the convergence of different sales channels and better capital deployment to higher-margin businesses. However, the company says it will raise prices because of tariffs, reversing its previous policy of focusing on market share rather than profitability.
The company’s global advertising business grew 50 percent, led by Walmart Connect in the United States, which was up by 31 percent.
Global e-commerce sales rose by 22 percent, driven by store pick-up, delivery, and marketplace.
These are high-profit margin businesses, helping boost every profitability metric: Adjusted earnings per share were $0.61, up from the $.58 forecasted, with operating income rising by $0.3 billion, or 4.3 percent. Return on invested capital came in at 15.3 percent, up by 30 basis points.
“We achieved e-commerce profitability both in the U.S. and for the global enterprise in Q1 for the first time,” Walmart chief financial officer John David Rainey said during the company’s earnings call.
At the same time, management raised concerns over the impact of trade tensions on costs and supply chain efficiency, saying that the company would raise prices to deal with the situation.
“We will do our best to keep our prices as low as possible,” CEO Doug McMillan said. “But given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure given the reality of narrow retail margins. In retail, managing inventory is always important.”
“We see opportunities to accelerate share gains and are maintaining the flexibility to invest in price as tariffs are applied to incoming goods,” Rainey said during the company’s Investment Community Meeting on April 9, reaffirming the company’s previous guidance.
Wall Street had cheered that strategy, sending Walmart’s shares 10 percent higher during the April 9 trading session.
The situation was quite different today, with Walmart’s shares trading lower in the early morning of May 15.
Fed Chair Jerome Powell commented Thursday that the economy could face more “persistent supply shocks,” which would pressure inflation, economic growth, and long-term interest rates.
Still, Walmart CEO McMillan struck a positive tone for the second quarter on sufficient inventories and higher profit margins.
“It’s helpful that we’re entering the second quarter with well-managed inventory,” he said.
“It’s helpful that we’re crossing the profitability threshold with e-commerce globally, and that we have these newer, higher margin businesses growing like membership and advertising.”
McMillan said it’s also helpful that Walmart sells a broad assortment of merchandise, much of which is replenishable.
Justin McAuliffe, a research analyst at Gabelli Funds, said Walmart appears more inclined to raise prices on general merchandise, while choosing to absorb more of the cost increases in groceries.
“The magnitude of the current tariffs is too much for them to absorb, which makes sense given how thin margins are in retail,” he said in a note sent to The Epoch Times.
“That said, the growth of their higher-margin businesses is giving them some flexibility to invest in price. They used the word ‘choiceful’—they’re being selective about where they absorb costs.”
McAuliffe said that the stock reaction was related to the general merchandise side.
“Overall, the selloff is a bit of an overreaction, especially since unchanged guidance should’ve been priced in,” he said.
