Walmart Earnings: Attractive Prices and Growing Digital Engagement Propel Market Share Gains

Key Morningstar Metrics for Walmart

• Fair Value Estimate: $52.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Walmart’s Earnings

We anticipate raising our $52 fair value estimate for Walmart WMT by a mid-to-high-single-digit percentage in light of strong fiscal 2025 second-quarter results. As recent market share gains look poised to persist, we plan to increase our fiscal 2025 comparable sales growth forecast for the Walmart US segment, which currently sits at 3.5%. Still, our long-term outlook for low-single-digit comp growth is intact, and we currently view the shares as overvalued.

Consistent with recent quarters, the nation’s leading retailer continued to drive positive traffic thanks to its low-price value proposition and convenient digital shopping options. Walmart US posted a 4.2% increase in comp sales growth (ahead of our 3.5% forecast) amid a robust 3.6% uptick in transaction volume, which we view as particularly impressive, considering the segment lapped a 6% comp from the prior year. Grocery (up mid-single digits) and health and wellness (up low double digits) continued posting strong growth, as we expected, and we were pleasantly surprised to see the general merchandise category stabilize as comp sales held flat. Walmart US’ operating margin improved 20 basis points to 5.7% as efficiencies in digital fulfillment helped minimize e-commerce losses. As we expected, robust growth from high-margin alternative profit streams such as advertising (up 30% in the US) and membership fees contributed to margin expansion.

Performance at Sam’s Club didn’t disappoint, as comp sales growth of 5.2% (led by a 6% uptick in volume) surpassed our 3.5% forecast. Sales expanded across all six of its main product categories, and we continue to be impressed by growth in membership fee income, which topped 14%. We think the warehouse club is well positioned to continue taking wallet share from existing shoppers, as management said penetration of its premium membership tier reached a record high (we estimate in the mid-50s).