Walmart’s Q2 Earnings Preview Highlights Impact of Tariffs and Trade Policies on Profit Margins

August 20, 2025

Walmart Earnings Preview: Navigating Tariffs and AmazonS Growing Grocery Presence

Bentonville, Arkansas – Walmart, the nation’s largest retailer, is scheduled to unveil its fiscal second-quarter 2026 financial performance before the markets open on Thursday, August 21st. Financial analysts are projecting earnings of $0.76 per share, alongside revenue totaling $176 billion. These forecasts suggest year-over-year growth of 13.5% in earnings and 4% in revenue, though these figures remain subject to revision.

Key performance Indicators to Watch

Current expectations point to an operating income of $8.7 billion, representing a projected 10% year-over-year increase. Recent performance indicates that growth in the first fiscal quarter of 2026 was largely propelled by strong sales in wellness and grocery categories. Grocery sales, consistently representing between 50% and 65% of Walmart’s total revenue, are under renewed scrutiny following Amazon‘s expansion of its same-day grocery delivery service through Prime.

Despite Amazon’s meaningful investments in Amazon web Services (AWS), both retail giants are on track to achieve $700 billion in annual revenue. This milestone signifies Amazon’s rise and reflects a notable shift in the competitive landscape,as Amazon has now reached a revenue level comparable to Walmart’s after over two decades of competition.

Margin Pressures and Revenue revisions

A central concern for investors revolves around Walmart’s gross margin, which has been impacted by evolving tariff dynamics. The company experienced a 34 basis point decrease in gross margin year-over-year in the fourth quarter of fiscal 2025. this trend continued in the first quarter of fiscal 2026, with an additional 86 basis point contraction, resulting in a cumulative 120 basis point compression over two quarters. While concerning, these figures remain comparatively better than the January 2023 report, when margins declined by 159 and 168 basis points sequentially and year-over-year, respectively, amid elevated grocery inflation and supply chain challenges.

Analysts have demonstrated volatility in their earnings and revenue estimates, likely as they attempt to account for the continuing effects of tariffs. A consistent trend of positive revisions would be preferable, a pattern frequently observed in previous walmart quarterly reports.

Strategic Shifts at walmart

Walmart has been actively evolving its operational strategies in recent years. Walmart Connect, an omnichannel advertising platform, is designed to connect customers with a broader range of products and services.However, there’s a slight divergence in reported growth figures, with global advertising revenue growing 29% in the fourth quarter of fiscal 2025, while Walmart Connect itself grew by 24% year-over-year.

The expansion of Walmart’s supply chain automation, announced in Spring 2023, is also expected to provide long-term benefits. The company has reported that the automation process is roughly 50% complete,suggesting further operational efficiencies and cost reductions are on the horizon.

Currently, e-commerce represents 20% of walmart’s $700 billion in total revenue, putting it on par with Amazon. Walmart is capitalizing on the demand for rapid delivery, with a focus on fulfilling orders within one to two hours for immediate needs.

Metric	Q2 ’26 (Expected)	Q1 ’26	Q4 ’25
Earnings Per Share (EPS)	$0.76	N/A	N/A
Revenue	$176 Billion	N/A	N/A
Operating Income	$8.7 Billion	N/A	N/A
Gross Margin Compression	N/A	-86 bps Y-o-Y	-34 bps Y-o-Y

Did you know? Walmart has remained the #1 company in the S&P 500 in annual revenue for many years, only occasionally surpassed by ExxonMobil during periods of high oil prices.

Valuation and Investor Outlook

Walmart’s stock currently trades at a premium, with a price-to-earnings (P/E) ratio of 37x based on fiscal 2026 estimates, particularly as earnings growth is projected to slow to 4%. On a cash-flow basis,the stock trades at 18x,but this is tempered by considerable depreciation expenses stemming from its extensive network of over 10,500 stores worldwide.

Currently trading around $100 per share, the stock holds a roughly 10% premium over perceived intrinsic value, estimated near $87 per share. While higher than some analysts’ estimates, such as Morningstar’s $62 fair value, the intrinsic value does not fully recognize Walmart’s stability and market dominance.

What factors do you think will have the greatest impact on Walmart’s stock price in the next quarter? And how do you anticipate these earnings will affect the broader retail sector?

Walmart’s Past Resilience

Throughout its history, Walmart has demonstrated remarkable resilience, even during challenging economic periods. Analysis of comparable sales data and average ticket prices during the 2008-2009 financial crisis reveals that the company never posted a negative sales “comp,” showcasing an extraordinary ability to withstand economic downturns.

This financial fortitude stems from Walmart’s commitment to cost containment, strategic investments in supply chain optimization, and its focus on everyday low prices, which continue to resonate with consumers, nonetheless of economic conditions.

Frequently Asked Questions about Walmart

• What is Walmart’s primary growth driver currently? Walmart’s growth is currently driven by strength in grocery and wellness sectors,alongside the expansion of its advertising and e-commerce business.
• How are tariffs impacting Walmart’s profitability? Tariffs are contributing to margin compression, as they increase the cost of goods sold, impacting overall profitability.
• What is walmart Connect? Walmart Connect is an omnichannel advertising platform designed to help brands reach Walmart’s extensive customer base.
• What is Walmart doing to improve its supply chain? Walmart is investing heavily in supply chain automation,aiming to reduce operating expenses and improve efficiency.
• how does Walmart compare to Amazon in terms of revenue? Both Walmart and Amazon are on track to reach $700 billion in annual revenue, signifying amazon’s competitive ascent.
• What is walmart’s operating margin? Walmart’s operating margin has been in the 4% range recently,with a recent uptick to 4.69%-4.70% in the July and October ’24 quarters.
• What is the outlook for Walmart stock? Current analysis suggests the stock is trading at a slight premium, but its intrinsic value is likely higher due to its market dominance and consistent performance.

Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Past performance is not indicative of future results. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.

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How might Walmart’s diversified sourcing strategy mitigate the negative impacts of Section 301 tariffs on its profit margins?

The Shifting Landscape of Retail Costs

As Walmart prepares to release its Q2 2025 earnings report, all eyes are on how the retail giant has navigated the complex web of tariffs and evolving trade policies. The impact on profit margins is expected to be a central theme, with analysts closely scrutinizing how Walmart has absorbed – or passed on – increased costs to consumers. This analysis delves into the key factors influencing Walmart’s performance, focusing on the interplay between international trade, supply chain disruptions, and consumer spending.

Tariff Impacts: A Deep Dive

The ongoing trade tensions,particularly those involving China,have directly affected Walmart’s cost structure.Here’s a breakdown of the key areas:

Increased Import Costs: Tariffs on goods imported from China have raised the price of numerous products sold at Walmart,ranging from electronics and apparel to household goods.

Supply Chain Realignment: Walmart, like many retailers, has been actively diversifying its supply chain to reduce reliance on single sources, particularly China. This involves sourcing from countries like Vietnam,India,and Mexico. Though, this realignment isn’t without its costs – establishing new relationships and infrastructure requires significant investment.

Section 301 tariffs: The continued request of Section 301 tariffs has been a persistent headwind. While some exemptions have been granted, the overall impact remains significant.

Impact on Specific Categories: Certain product categories have been disproportionately affected. For example, tariffs on steel and aluminum have increased the cost of products containing these materials.

Trade Policies and Walmart’s Response

Beyond tariffs, broader trade policies have played a role. The USMCA (United States-Mexico-Canada Agreement) has brought some stability to trade within North America, but also introduced new compliance requirements. Walmart’s response has been multifaceted:

1. Negotiating with Suppliers: Walmart has leveraged its immense purchasing power to negotiate with suppliers, seeking price reductions to offset tariff increases.
2. Optimizing Logistics: investments in logistics and supply chain management – including automation and improved transportation networks – aim to reduce overall costs.
3. Private Label Expansion: Expanding its private label brands (like Great Value and Equate) allows Walmart to offer lower-priced alternatives to branded products, mitigating the impact of tariffs on consumers.
4. Strategic Pricing Adjustments: Walmart has selectively increased prices on certain items,but has generally resisted broad-based price hikes,fearing a loss of market share.This strategy puts pressure on gross margins.

Q2 Earnings Expectations: Key Metrics to Watch

Analysts will be focusing on several key metrics in Walmart’s Q2 earnings report:

Comparable Sales Growth: This is a crucial indicator of Walmart’s overall performance. Expectations are moderate, reflecting the challenging economic environment.

E-commerce Growth: Walmart’s e-commerce business remains a key growth driver. Investors will be looking for continued momentum in online sales.

Gross Margin: this is where the impact of tariffs and trade policies will be most visible. A decline in gross margin would suggest that Walmart is struggling to absorb increased costs.

Inventory Levels: Managing inventory effectively is critical in a volatile trade environment. Analysts will assess whether Walmart has optimized its inventory levels to minimize risk.

Operating Expenses: Controlling operating expenses is essential for maintaining profitability.

The Consumer Impact: Shifting Spending Patterns

The impact of tariffs isn’t limited to Walmart’s bottom line. Consumers are also feeling the pinch. We’ve observed:

Trading Down: Consumers are increasingly opting for lower-priced alternatives, including private label brands.

Reduced Discretionary Spending: Higher prices on essential goods are leaving consumers with less disposable income for discretionary purchases.

Shift to Value Retailers: Walmart, along with other value retailers like Dollar General, is benefiting from consumers seeking lower prices.

Case Study: The Washing Machine Tariff

The imposition of tariffs on imported washing machines in 2018 provides a relevant case study. While not directly comparable to the current situation, it demonstrated how tariffs can disrupt supply chains and impact consumer prices. Initially, washing machine prices rose significantly. Though, manufacturers responded by shifting production to countries not subject to the tariffs, eventually mitigating some of the price increases. This illustrates the dynamic nature of the global supply chain and the potential for adaptation.

Benefits of Walmart’s Scale and Diversification

Despite the challenges, Walmart possesses several advantages:

Scale: Its massive size allows it to negotiate favorable terms with suppliers and absorb some of the increased costs.

Diversified Sourcing: The ongoing diversification of its supply chain reduces its vulnerability to disruptions in any single country.

* Strong Brand Recognition: Walmart’s strong brand reputation and loyal customer base provide a