Adjusted EPS Up 19% and Guidance Raised — So Why Did Walmart's Stock Fall 9.6%?
2026-08-21 10:24 PMGeneral
Overview
Walmart posted Q2 FY2027 revenue of $187.9B (+5.9%) and adjusted EPS of $0.81 (+19%), beating estimates and even raising full-year guidance — yet the stock plunged 9.6% on the day. U.S. comparable sales growth slowed from 4.1% to 2.6%, a six-year low, and a meaningful share of the operating-income growth came from a $2.9B tariff refund. Rather than banking that money as profit, Walmart is pouring it into price cuts on more than 11,000 items.
On August 20, Walmart reported results for the second quarter of fiscal 2027 (May–July), part of a fiscal year running February 2026–January 2027. Revenue came in at $187.9B, above the $186.75B consensus (+5.9%), and adjusted EPS beat the $0.74 estimate at $0.81 (+19% from $0.68 a year earlier) — both figures came in as beats. On the strength of that, the company raised its full-year FY2027 guidance across revenue, operating income and EPS all at once. And yet the stock plunged 9.6% on the day, closing at $103.32. Results beat, guidance raised — so why did the market react this way?
+23% (Walmart U.S. +24%, Sam's Club U.S. +26%, International +19%)
Global advertising business
+38% (Walmart Connect, ex-VIZIO +43%)
Global membership fee income
+17%
Operating cash flow / free cash flow
$19.7B / $5.5B
At 2.6%, U.S. comparable sales growth is 1.5 points below the prior quarter's 4.1% and 1.2 points below the 3.8% consensus — roughly a six-year low. Taken at face value, it reads as a demand-slowdown signal. But there's a separate factor worth unpacking first.
The core U.S. Walmart store channel showed the slowest comparable-sales growth company-wide this quarter
The Core Insight — What "Six-Year Low" and "Tariff-Refund Surprise" Actually Weigh
Start with the comp slowdown. This quarter's U.S. pharmacy business absorbed roughly 125bp (1.25 points) of revenue-recognition drag from a newly effective drug-pricing regulation, the "Maximum Fair Price." Strip that out and comparable sales growth comes to roughly 3.9% — essentially in line with the prior quarter's 4.1%, and slightly above the 3.8% consensus. In other words, a meaningful share of the "six-year low, missed estimates" story the headline number tells is likely an accounting drag from a change in drug-pricing policy rather than an actual pullback in consumer demand — though it's worth noting this reconstruction comes from outside analyst estimates, not something Walmart itself officially disclosed as "3.9% ex-regulation."
The second headline is what fueled the operating-income beat. The company expects to receive roughly $2.9B in refunds on tariffs it had already paid on imports under the International Emergency Economic Powers Act (IEEPA), and that refund contributed roughly 750bp to this quarter's 17.4% constant-currency adjusted operating income growth. Strip that out and the figure comes to roughly 9.9% — near the top of the 7–10% constant-currency operating-income growth guidance the company had set before this release. That means underlying performance held up solidly even without the refund — but it also means nearly half of this quarter's headline 17.4% growth was a one-off that won't repeat.
What the market actually reacted to most sharply, though, is something else. Walmart said it won't keep that $2.9B refund as profit — starting in Q3, it's pouring the money into price cuts on more than 11,000 items. As a result, Q3 adjusted EPS guidance came in at $0.62–0.64, below the roughly $0.68 the market had expected. That's less a warning that results will come in worse than expected, and more management declaring, in effect, that it will sacrifice margin to sharpen its low-price positioning. It's a preemptive signal to rivals facing rising tariff-driven cost pressure: "we can go lower." The problem is that the market — sitting on a mid-30s valuation multiple — read this choice as a margin-erosion signal rather than a defensive strategy, and that appears to have been the real trigger behind the sell-off.
Business Impact — the Core Business Slows While Alternative Revenue Accelerates
Set the comp debate aside, and one thing about this quarter is unambiguous: Walmart's profit is increasingly being generated somewhere other than store gross margin. Global e-commerce grew 23%, the advertising business (Walmart Connect) grew 43% even excluding VIZIO, and membership fee income grew 17% — all multiples of the 2.6% U.S. comparable sales growth rate. The advertising business in particular carries a structurally higher gross margin than retail itself, so it's playing a growing role in defending company-wide profitability even as the core business decelerates.
There's also a gap by region and format. Looking at this from the industry side, this gap is hard to wave off as mere channel-level noise. Sam's Club U.S. comparable sales grew 4.4%, and International net sales grew 7.9% on a constant-currency basis — both notably faster than Walmart U.S. (+2.6%). That makes the core U.S. store channel the slowest-growing part of the company, and whether that trend continues next quarter will be the real test of whether this is a temporary regulatory effect or genuine demand slowdown.
✦RIT's Insights
The first thing worth checking in this release is whether the "six-year-low comparable sales" headline should be taken at face value. If the reconstruction that strips out the drug-pricing regulation effect is roughly right — essentially unchanged from the prior quarter — then the market's 9.6% drop may be something of an overreaction. Finance and IR teams should, behind a "beat and raise" headline, separate out how much of the operating-income growth came from a one-time tariff refund, and whether a comp miss stems from a regulatory/accounting factor or actual demand weakness. When both forces are at work at once, as in this Walmart release, the headline alone can point you in the wrong direction.
Second, RIT actually reads the decision to pour the tariff refund into price cuts rather than bank it as profit as a positive. Signaling "we can go lower" right now, while rivals face rising tariff-driven costs, is about as solid a defense line as a retailer can build for protecting traffic in the next downturn. RIT expects investors will come to see next quarter's lower EPS not as weakness but as a calculated choice, once Q3 results confirm it. That said, vendors and brands supplying the U.S. channel are likely to feel this decision directly and soon — price cuts across 11,000-plus items could spread into broader price-competition pressure across U.S. retail in Q3, and it's worth preparing in advance for the possibility of margin-pressure requests. How Costco, Target and Amazon respond to this price-cut push will also be a signal for where margins across U.S. retail trend next quarter.
Finally, what Korean retail should watch closely here is the growth rate of the advertising and membership businesses. That advertising can post 40%-plus growth and defend company-wide profitability even as the core store business slows to the low single digits is a signal that domestic hypermarkets and department stores, too, should stop treating retail media and paid membership as "add-on services" and start redefining them as a core profit engine that offsets a slowing core business. Practically speaking, Walmart Connect's 43% growth is exactly that evidence — advertising and membership are no longer side income, they're now a core profit-defense line, and worth benchmarking alongside the domestic push to build out proprietary retail media businesses.
