Key Takeaways for Walmart Stock
- Walmart delivered Q1 FY2027 revenue of $177.75 billion, up 7% year over year.
- Gross margin held at 25%, while operating margin compressed to 4% as SG&A absorbed the revenue gain.
- Advertising grew 37% globally and membership fee revenue grew 17%, together comprising roughly 33% of operating income.
- TIKR’s model values WMT stock at approximately $146 by January 2031, implying around 20% total return from the current price.
Walmart Stock’s Q1 FY2027 Revenue Beat Masks an Operating Margin Story Worth Reading Carefully
Walmart Inc. (WMT) reported Q1 FY2027 revenue of $177.75 billion, beating Street estimates of $174.84 billion by roughly 2% on the strength of accelerating eCommerce, marketplace, and advertising growth.
The quarter’s headline was transaction volume: U.S. transaction growth was the strongest in six quarters, driven by rollbacks, general merchandise share gains, and Sparky, Walmart’s AI shopping agent, whose weekly active users more than doubled in the quarter.
eCommerce enterprise sales grew 26%, with U.S. delivery up 45% and marketplace net sales up nearly 50%.
Advertising grew 37% globally, with Walmart U.S. Connect specifically up 36%, fueled by marketplace sellers who grew advertising spend by more than 50%.
CFO John David Rainey framed the operating income story in Q1 earnings call directly: “First quarter adjusted operating income growth in constant currency of approximately 5% was in line with our guidance despite higher-than-anticipated fuel costs.”
Rainey noted that elevated fuel costs absorbed approximately $175 million, representing roughly 250 basis points of operating income growth, a one-quarter drag that management expects to normalize.
Q2 operating income guidance calls for 7% to 10% growth in constant currency, with the full year reiterated at 6% to 8%, signaling that the fuel headwind was not a structural event.
Membership fee revenue grew 17% for the enterprise, with Walmart Plus U.S. net adds reaching a Q1 high, and Rainey noted that advertising and membership together now represent roughly 33% of total enterprise operating income, a materially different business mix than a decade ago.
Walmart’s Gross Margin Held at 25% While Operating Margin Gave Back Ground: What the Gap Says
Walmart’s gross margin held at 25% in Q1 FY2027, matching the year-ago quarter and marking the second consecutive quarter at that level after the 25% reading in Q1 FY2026.
Gross profit grew to $44.69 billion, up 8% year over year, the strongest gross profit growth rate in the eight-quarter window provided.
SG&A expanded to $37.20 billion, absorbing most of that gross profit gain and leaving operating income at $7.49 billion, up 5% from the year-ago quarter.
Operating margin landed at 4%, down from 4% in Q1 FY2026 — a flat comparison on paper, but the income statement detail shows SG&A growing roughly in line with gross profit rather than trailing it.
The prior quarter, Q4 FY2026, delivered a 5% operating margin on $190.66 billion in revenue; the quarter-over-quarter compression in Q1 reflects the seasonal revenue step-down and the fuel cost absorption that management quantified at $175 million.
The long-range trajectory matters here: operating margin has moved between 4% and 5% over the past eight quarters, with the trough at 4% in Q3 and Q4 FY2026, and the recent peak at 5% in Q4 FY2026.
The investment thesis is not that Walmart has crossed into structural margin expansion yet — it is that the business mix shift toward advertising and membership, now at roughly 33% of operating income, creates a compounding floor under operating income growth even when fuel or macro costs flare.
Walmart Leads Costco on Gross Margin Across Eight Quarters, but Target Holds the Structural Premium
Walmart has posted gross margins between 25% and 25% consistently across the eight quarters ending Q1 FY2027, while Costco (COST) has tracked between 13% and 13% over the same period.
The 12-point gap between Walmart and Costco reflects a structural difference in business models: Costco’s warehouse format prices goods near cost and monetizes through membership fees, while Walmart’s mix of grocery, general merchandise, and marketplace carries a higher sticker margin.
Meanwhile, Target (TGT) has run gross margins between 26% and 30% across the same eight quarters, maintaining a consistent premium over Walmart that has held regardless of macro environment.
The gap between Target’s 29% in the most recent quarter and Walmart’s 25% is not a valuation discount — it is a business model signal: Target’s higher gross margin reflects a more general-merchandise-weighted mix, while Walmart’s 25% floor is increasingly defended by advertising and membership income that sits below the gross profit line but above operating income.
That distinction matters for the thesis: Walmart’s gross margin stability across eight quarters, while trailing Target, is being reinforced by commerce solutions revenue that does not require additional cost of goods sold, meaning the operating leverage story could emerge from the line items below gross profit rather than from gross margin expansion itself.
Is Walmart Stock Undervalued in 2026? TIKR’s $146 Model Implies 20% Total Return
TIKR’s model values Walmart at approximately $146 by January 2031, implying around 20% total return from the current price of $121, or roughly 4% per year.
The model’s credibility rests on the same mechanism the income statement is already showing: a business mix that increasingly layers advertising and membership income, both carrying materially higher margins than traditional retail, over a stable and growing revenue base.
If SG&A continues to scale in line with gross profit rather than trailing it, the path to that target requires operating leverage to eventually inflect, which is the unresolved question the Q1 income statement leaves open.
Should You Invest in Walmart Inc.?
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What Is Walmart’s Guidance for FY2027?
Walmart guided for Q2 FY2027 operating income growth of 7% to 10% in constant currency, with full-year constant currency sales growth expected toward the upper end of its 3.5% to 4.5% range.
What Did Walmart Say About Advertising in Its Q1 Earnings Call?
Walmart’s advertising business grew 37% globally in Q1 FY2027, with marketplace sellers increasing their advertising spend by more than 50%, and Chief Growth Officer Seth Dallaire described advertising and retail media as a critical component of the company’s profit and customer experience strategy.
