Walmart Inc. WMT

Key data

The business

Walmart sells groceries, cheaply, to more Americans than anyone, and food drives the bulk of US store sales while earning pennies on the dollar. The moat is distribution scale: a nationwide store footprint within ten miles of nearly everyone, buying power no rival matches, now wired into a delivery network that finally turned profitable. What matters to this price is not the milk, it is what rides on top: Walmart Connect advertising sold against store and app traffic, Walmart+ memberships, and marketplace fulfillment fees. Those dollars carry margins a grocer can only dream of, which is why operating income can grow four to five times faster than revenue. The shopper sees low prices and a delivery slot; the income statement sees an ad impression and a membership fee.

The numbers

Five quarters show the shape: revenue steps up into each January quarter, and the profit line is starting to pull away from it.

Revenue rose 5.9% year over year last quarter, with US comparable sales up 3.3% on both more transactions and higher tickets, grocery strong, pharmacy dragged by new maximum-fair-price drug rules. Note the divergence in the table: net income fell 9.4% while operating income rose 28.8%. That gap is below the operating line, swings in the value of Walmart's equity stakes, not the stores; adjusted earnings of $0.81 beat the $0.74 consensus, the fourth straight beat. Operating income is the clean read here, and it is accelerating.

Revenue compounded about 5.6% a year since FY2022, but diluted EPS went from $1.62 to $2.73, roughly 14% a year, because margins widened and buybacks shrank the share count. Operating cash flow reached $41.6B in FY2026 from $36.4B, yet capex leapt to $26.6B, up from $13.1B in FY2022 and nearly double depreciation, leaving free cash of $14.9B. The split between earnings and cash that a careful reader would watch has not opened, both rose, but capex at that intensity is the wedge that could pry them apart if the automation and supply-chain build does not convert into margin. What this memo believes that the tape does not: the ad-and-membership mix is quietly turning a grocer into a margin compounder, and the print that settles it is operating income growth holding well above revenue growth.

Management

No insider buying; about $1.5B sold across 40 filings over twelve months, the three largest all the Walton Family Holdings Trust ($467M, $235M, $184M). Plan status is not disclosed, so read these as the family's routine monetization rather than a verdict on the business. Buybacks were $8.1B in FY2026, up from $4.5B, executed with the stock near record highs and a record multiple, capital returned at a rich price, not a cheap one.

How it fails or surprises you

Traffic stalls. US comparable sales rose 3.3% last quarter on more trips, and that traffic is the entire engine. If higher-income households who moved to Walmart shift back as grocery inflation cools, comps could slip toward 1% to 2% within two quarters and the operating leverage evaporates. Watch the Walmart US transactions line; it is the truest tell.

The margin flywheel (right tail). Advertising, memberships and marketplace fees are still small but compounding above 20%, and they are why operating income grew 29% on 6% sales. If that mix keeps inflecting, operating margin moves from 5% toward 6% and earnings re-rate for years while the market still models a retailer. The print: operating income growth holding three times revenue growth for consecutive quarters.

Earnings that outrun cash. Net income fell 9.4% last quarter even as operating income rose 29%, a gap from equity-investment swings, and free cash is squeezed by $26.6B of capex against a stock at 63 times free cash. If capex keeps climbing without margin follow-through, or the investment losses prove less one-time than told, the cash never shows up to justify the multiple.

Closing thoughts

This is a business the market has largely figured out. At 39 times earnings, the top of a twelve-year range and nearly double the average retailer's 23, the price already assumes the flywheel keeps spinning; the seller across from you thinks a grocer growing sales 6% cannot compound earnings at 14% forever, and the burden is on the buyer to show the ad-and-membership mix keeps inflecting. The fatter tail is the downside: at this multiple, a quarter of soft traffic compresses the earnings and the multiple at once, with little valuation cushion, while the upside needs several more quarters of margin proof to earn a re-rate it has arguably already been handed.

The bet is still that Walmart keeps winning the grocery aisle and turns that traffic into high-margin dollars from advertising, memberships and delivery. What breaks it is the traffic rolling over, and the one pair that tells you first is US comparable transactions against operating margin: as long as both climb together the story holds; the quarter they split is the quarter you learn you paid a record price for a grocer's promise.