Maintaining Outperform: A Clean Print, the First-Ever Quarter of Consolidated E-Commerce Profitability, the Conservatism Cadence Becomes a Four-Data-Point Pattern, and the Withheld Q2 OI Guide Is an Accounting-Fluidity Statement Not a Fundamentals Statement

Initial read: Walmart's Q1 FY2026 print was clean across every dimension we underwrite, and the structural milestone embedded in the print — the first-ever quarter of consolidated e-commerce profitability, with U.S. and Sam's profitable and International only slightly unprofitable — arrived earlier than the H2 FY26 base case we underwrote at the Q3 FY25 upgrade. The withheld Q2 operating-income guide is an accounting-fluidity statement (Retail Inventory Method markup distortion in a tariff-driven cost-up environment, with potential markdown reversal in Q3-Q4) rather than a fundamentals statement: the full-year sales and OI guide was reiterated within the modeled tariff scenarios. The conservatism cadence is now a four-data-point pattern. Maintaining Outperform.

Rating Action: Maintaining Outperform

This is our third rating action since initiating coverage at Hold (with constructive bias) on the Q2 FY2025 print nine months ago. The Q1 FY26 print is the conviction-step-up trigger we identified at the Q4 FY25 maintain: the Q1 print clearing the soft implied guide while the conservatism cadence becomes a four-data-point pattern. Our reading is that the print does clear the bar and the cadence pattern is now sufficiently established that it is, itself, a structural feature of the equity story rather than three or four lucky quarters. We continue to view the multi-year algorithm (sales ~+4% with OI growing faster) as intact and are encouraged that the U.S. e-commerce profitability inflection arrived ahead of our underwritten timing. We are not stepping up to a higher conviction tier today because the tariff overhang is real and the Q2 accounting timing creates a wider distribution of near-term outcomes than we typically tolerate at conviction tiers; we want to see one more quarter through the tariff-impacted period before reclassifying. The rating-action arc to date:

• Q2 FY2025 (Initiating at Hold, constructive bias). We initiated at Hold not because we doubted execution but because the equity already discounted continued operating-income-faster-than-sales delivery. Three Hold-gating concerns: (1) deliberately measured back-half guide could cap near-term upside surprise; (2) valuation discounted continuity, leaving little cushion for normal-course execution variability; (3) upper-income share-gain story carried reflexivity risk if the consumer cycle re-firmed.
• Q3 FY2025 (Upgrading to Outperform). Q3 cleared the deliberately-measured guide on every dimension — sales +6.1% CC vs. +3.25%-4.25% guide; operating income +9.8% CC vs. +3%-4.5% guide. The U.S. e-commerce loss reduction was confirmed durable at three consecutive quarters of ~40% net delivery cost per order improvement. Two of the three Hold-gating concerns were resolved or substantially mitigated. We upgraded on a clearly differentiated FY26 view (Street base case too low by 100-200 bps, U.S. e-commerce profitability inflection arriving in H2 FY26 vs. Street's FY27 base case).
• Q4 FY2025 (Maintaining Outperform). Q4 was the cleanest print of the fiscal year. FY25 finished at the top of the post-Q3 raised range (+5.6% sales / +9.7% OI in CC). The FY26 guide spooked the equity (-6.7% on the print) but normalized for VIZIO + leap day to +5-7% OI growth — the same algorithm. The conservatism cadence became a three-data-point pattern. We maintained Outperform on the ratification of the multi-year algorithm and the more attractive entry created by the sell-off, with the Q1 FY26 print listed as a potential conviction-step-up trigger.
• Q1 FY2026 (Today — Maintaining Outperform). Q1 cleared the soft implied guide despite a 150 bp FX drag and a leap-day-comparison headwind. Adj. EPS $0.61 topped both the Street and the company's own guided range. The U.S. e-commerce profitability inflection arrived this quarter, with consolidated global e-commerce profitable for the first time. The conservatism cadence is now a four-data-point pattern. The full-year sales and OI guide was reiterated within the modeled tariff scenarios; the withheld Q2 OI guide is an accounting-fluidity statement (RIM markup mechanics + LIFO potential) rather than a fundamentals statement. Maintaining Outperform — we continue to underwrite the multi-year algorithm; we are not stepping up to a higher conviction tier today because tariff-policy fluidity creates a wider near-term distribution than we typically tolerate at conviction tiers, and we want one more quarter through the tariff-impacted period.

What gets us to a conviction-step-up: (a) Q2 FY26 print clears even a wide range of plausible RIM-markup-flattered outcomes and management reiterates the full year within the same scenario set; (b) tariff-policy clarification that brings the modeled-scenario range narrower (especially China resolution); (c) U.S. e-commerce profitability deepens or International e-commerce crosses to profit; (d) advertising or membership growth re-accelerates above +30% reported on an apples-to-apples basis (i.e., excluding the VIZIO comp benefit). What gets us back to Hold: (a) Q2 print disappoints despite the favorable RIM-markup setup, indicating the cadence has broken; (b) a restoration of "dramatically higher tariff levels" (Rainey's words) for an elongated period that the modeled scenarios don't absorb; (c) U.S. comp deceleration in upper-income cohorts not offset by middle/lower-income share gains; (d) GM comp deflation deepens beyond low-single-digit and unit growth turns negative; (e) the markup-then-markdown sequencing flips negative in Q3-Q4 by a magnitude that meaningfully impairs the full-year OI build.

Results vs. Consensus and vs. Guide

The headline read: revenue effectively in line on a reported basis (FX cost ~150 bps / ~$2.4B), but a clear beat on currency-neutral growth, on segment comps, and on margin, with adj. EPS topping both the Street and the company's own guided range. The print was, on management's framing, "what we expected on the top line and better than what we expected on the bottom line." The pattern is consistent with the prior three quarters — bottom-line outperformance against the company's own deliberately-measured guidance, this time reinforced by an explicit acknowledgment that April was better than expected and that gross-profit-and-SG&A discipline drove the upside.

Segment Performance

Walmart U.S. (+4.5% comp ex-fuel)

Walmart U.S. delivered a +4.5% comp aided by +21% e-commerce growth. Grocery posted a mid-single-digit comp with continued share gains, and grocery private-brand penetration was up 60 bps YoY (a useful indicator of trade-down posture in the category). Health & wellness was up high-teens, with prescription volume strength supporting the headline; strip out GLP-1s and prescription growth was still over 10%, an important secondary-store-traffic data point that goes underappreciated in the consensus model. General merchandise was slightly negative (deflationary low-single-digit) but with unit growth, suggesting the deflation reflects mix and price rollback rather than a demand collapse; categories called out as strong included toys, kids' apparel, and baby. Gross margin in Walmart U.S. expanded 25 bps on lower markdowns, mix improvement (advertising + membership), and disciplined inventory. SG&A deleveraged on higher D&A, VIZIO operating cost post-acquisition, and higher casualty claims accruals (management telegraphed this at the Investor Day in early April; the trend "expects to persist for at least a few quarters"). The first-ever U.S. e-commerce profitability print is the most consequential single data point in the segment.

Walmart International (+7.8% CC)

International grew +7.8% CC with double-digit e-commerce growth across markets, led by China and Flipkart in India. Walmex was slightly softer than expected on (i) lapping last-year government stimulus payments, (ii) Easter timing, and (iii) early-quarter macro softness; management noted business has since picked back up to expectation. McLay's framing — "good result, but we can still do better" — reads as the same posture she telegraphed at the Investor Day in Dallas (April 8-9), with high-growth markets driving the segment and choppy calendar comparisons creating noise the algorithm should grow through. International e-commerce reached "slightly unprofitable," with the consolidation roll-up turning consolidated global e-commerce profitable for the first time. Total marketplace GMV across Canada, Chile, and Mexico grew +30%+, with 4,000+ new sellers signed in Mexico and Canada combined and SKU count +80% YoY in those two markets — an important leading indicator for International marketplace and advertising contribution.

Sam's Club U.S. (+6.7% comp ex-fuel)

Sam's posted a +6.7% comp ex-fuel with strong transaction growth, e-commerce +27% (triple-digit growth in club-fulfilled delivery), and Scan & Go penetration +600 bps YoY. Over half of members now transact digitally in some form. Membership income grew +9.6% with steady member-count, renewal-rate, and Plus-mix progression. Sam's e-commerce was profitable. The category mix progression in GM at Sam's (closer to flat in a deflationary environment, units driving the growth) is the same pattern as Walmart U.S. — deflation drives the dollars; units drive the underlying business health. We continue to view the Sam's franchise as a meaningful component of the alt-profit-pool composition step-up over the multi-year window, even though it remains a smaller absolute contributor than Walmart U.S.

Key Topics and Management Commentary

The structural milestone: consolidated global e-commerce profitability

The single most consequential data point in the print is that consolidated global e-commerce reached profitability for the first time. By segment in Q1: Walmart U.S. e-commerce profitable, Sam's e-commerce profitable, International e-commerce slightly unprofitable. We had underwritten the U.S. e-commerce profitability inflection as a H2 FY26 event at the Q3 FY25 upgrade; it arrived this quarter. Management's framing of the drivers reinforces the structural read — densification of last-mile delivery (more deliveries per route, declining unit cost), customer willingness to pay for expedited delivery (with more than a third now paying for expedited — up further this quarter), and higher-margin business mix (advertising + membership now contributing meaningfully). McMillon noted Walmart will reach 95% of the U.S. population with delivery options of three hours or less, and Walmart U.S. sub-three-hour deliveries grew +91% YoY. Read this as a multi-year structural shift in the second-P&L economics, not a one-time Q1 pop. Rainey explicitly framed the milestone as durable: "We've consistently for years seen improvements there... with a digital platform, as you grow that at a positive contribution profit, you ultimately get to overall profitability, which is where we are today."

"We achieved eCommerce profitability, both in the U.S. as well as for the global enterprise in Q1 for the first time, an important milestone for our company." — John David Rainey

The alt-profit-pool composition step-up

Rainey called out the diversification of income streams as "the story about the quarter from a financial perspective." Advertising and membership combined to roughly a quarter of profits. Advertising was +50% reported (+27% on an apples-to-apples basis stripping the VIZIO comp benefit), with Walmart Connect U.S. (excluding VIZIO) at +31% and Sam's ad business +21%. Membership income was +14.7% enterprise, with Sam's +9.6%, Walmart+ double-digits, and Sam's Club China +40%+. The Walmart Connect-plus-VIZIO integration is in early innings, and the optionality on the connected-TV inventory layered onto Walmart's first-party sales-attribution data remains a multi-year capability gap that competing retail-media networks structurally cannot close. The advertising re-acceleration above +30% reported (apples-to-apples, ex-VIZIO) was one of our explicit Q4 conviction-step-up triggers; it cleared by 300 bps reported but only ~70 bps on the apples-to-apples comparison. Membership growth above the +15% threshold cleared on the enterprise basis. Both reads support the underlying alt-profit-pool composition story; neither alone meets the conviction-step-up threshold but combined with the cadence pattern they reinforce the maintain.

"If you were to just take advertising and membership as an example, that's a quarter of our profits... You're seeing this diversification of our income streams that allows us to continue to take a very long term perspective and invest in this business." — John David Rainey

Tariffs, retail accounting, and the case for reading Q2-Q3-Q4 in aggregate

Management spent significant portions of both prepared remarks and Q&A on the tariff backdrop and the retail-accounting mechanics that will distort quarterly OI through the tariff-impacted period. The core points worth internalizing:

• Sourcing posture: More than two-thirds of what Walmart sells in the U.S. is made, assembled, or grown domestically. Of the imported portion, the largest source markets are China, Mexico, Vietnam, India, and Canada. China is concentrated in electronics and toys (high relevance for the holiday quarter). The U.S. sourcing posture is a structural advantage relative to most large-format peers; we view this as one of the key bull points in a tariff-fluid environment.
• RIM mechanics (the Q2 distortion): Walmart uses the Retail Inventory Method for the majority of U.S. inventory. As retail prices reset higher in response to tariff cost pressure, RIM applies markups to all on-hand inventory at the time of the price reset — even units that haven't been sold and may ultimately sell at a different price. This can inflate gross margin in the markup quarter (Q2). If those goods don't sell at marked-up retails and require markdowns later, the offsetting effect lands in Q3-Q4. McMillon's framing on the call: "Q2 earnings look unusually high and the range of outcomes is wider, which is why we're not providing guidance for the quarter." This is an accounting-timing statement, not a fundamentals statement.
• LIFO at Sam's (a secondary distortion): Rainey flagged the possibility of LIFO charges at Sam's, similar to those experienced during the FY24 sustained inflationary period. This is a real but smaller P&L line item.
• Modeled scenarios and full-year reiteration: Walmart explicitly reiterated the full-year sales (~+4%) and OI (faster than sales) guide framework within the modeled tariff scenarios, with the caveat that "if we see a restoration of dramatically higher tariff levels, the impact on our financials could be significant and even jeopardize our ability to grow earnings year-over-year." The base case the company is underwriting assumes bilateral negotiations move tariff levels lower than the early-April peak; at the time of the call, the China tariff had moved from the 145% peak to a reduced level. The fact that management is willing to reiterate the full year while explicitly declining to bracket Q2 is a signal that the company believes the markup/markdown sequencing will roughly net to plan over the H2 horizon.

The right way to read the next two earnings prints is in aggregate, with an emphasis on inventory health (managed inventory entering Q2 was +3.8% — healthy) and unit-decision discipline. McMillon and the CFO repeated several times that the goal is to avoid a "2022 scenario" of inventory bloat into a softening unit environment. Walmart entering Q2 with managed inventory levels is the most tangible piece of evidence that the unit-decision process is being run with discipline.

"In Q2, if we have a markup, we take it on all the inventory we have on-hand, even if we don't sell it in that quarter and even if we don't ultimately sell it at that price... It ultimately boils down to how well do we forecast sales, manage inventory, and make quantity decisions." — Doug McMillon

Consumer health: choiceful but resilient, growth across cohorts

Furner's framing was that customers remain "choiceful and consistent" with continued prioritization of value and speed. Importantly, Walmart U.S. saw growth across all income cohorts in the quarter; the upper-income share-gain story remains intact and is now layered with new customers. The shape of the quarter (soft February → normalized March → strong April with a strong Easter) reads as a calendar-driven pattern (leap-day comparison + late Easter) rather than a demand softness signal. We had flagged the upper-income reflexivity concern as the lone open Hold-gating concern from initiation; this print does not change the multi-year tail-risk classification but it does push the inflection further out.

Capital allocation: aggressive buyback at the dislocation, CapEx steady

Walmart repurchased $4.6B in stock during Q1 — "an amount equivalent to our share repurchases for the entire year last year." That pace was opportunistic against the post-Q4 sell-off and the tariff-driven April price dislocation. Rainey explicitly signaled buyback for the full year FY26 will be higher than FY25 ("obviously we're going to spend more in share buyback this year than we did last year, given that we've already done that one quarter into the year"). CapEx remains the 3-3.5%-of-sales algorithm with a long-term posture on supply chain automation; April brought a ~$4B debt issuance "at attractive terms." We read the buyback acceleration as confidence-revealing rather than a financial-engineering tilt — consistent with the multi-year algorithm.

Analyst Q&A

The Q&A was substantive, with most lines spent on the tariff/RIM accounting topic and on the e-commerce profitability inflection drivers. Notable threads we paraphrase below.

• Paul Lejuez (Citigroup) opened on the e-commerce profitability milestone — what got the company over the hump, and the trajectory from here. Rainey credited densification of the last-mile network, declining unit delivery cost, customer willingness to pay for expedited (now over a third of customers), and higher-margin business mix. Furner extended with a multi-year framing — combined-app, FCs, omnichannel-store-as-fulfillment, marketplace fulfillment services, all building to first-time profitability.
• Simeon Gutman (Morgan Stanley) pressed on whether the company should toggle further toward investment given the environment. McMillon's response was a measured "if we need to invest more, we can" but reiterated the priority on growing OI faster than sales over the long range plan. Rainey added that the FY26 guide is already half the average of the last two years on OI growth (~5% vs. ~10% multi-year average) — this is "a year of investment" with the diversified income streams permitting that investment posture.
• Christopher Horvers (JPMorgan) asked about consumer health by income cohort. Furner confirmed growth across all income cohorts, framed February as weather/leap-day-distorted, March as normalized, April as strong with a strong Easter. No incremental signs of bottom-of-funnel loss in the lower-income cohort.
• Peter Benedict (Baird) asked about CapEx and buyback. Rainey reiterated the 3-3.5% of sales CapEx framework as a multi-year algorithm, signaled FY26 buyback will exceed FY25 (already done by Q1), and emphasized aggressive buyback when price dislocations occur.
• Brad Thomas (KeyBanc) probed the Walmart Connect strength and VIZIO integration progress. Furner: ad-business strength is broad-based across marketplace sellers, first-party, and third-party suppliers; VIZIO integration in early innings.
• Michael Lasser (UBS) asked the most pointed tariff question — whether current tariff levels are "elevated" enough to constitute the downside-risk scenario, and whether the long-term margin algorithm could absorb the tariff backdrop. Rainey's responses: (i) the early-April tariff peak (China at 145%, others approaching 50%) was the elevated scenario; current levels are still "too high" but absorbed within the reiterated guide; (ii) nothing in the current environment changes the long-term margin algorithm. We read this as management explicitly bracketing what "elevated" means for guidance purposes — and explicitly committing to the multi-year algorithm even through the tariff-impacted period.
• Edward Kelly (Wells Fargo) asked about inventory planning under tariff fluidity and the risk of a 2022-style overhang. McMillon framed Walmart's replenishable-item exposure as a structural advantage relative to high-low retailers (units flow weekly with cost adjustment vs. one-time quantity calls); seasonal items (back-to-school, Halloween, Christmas) require farther-out quantity calls and carry more risk.
• Kate McShane (Goldman Sachs) asked about marketplace seller impact from tariffs. Furner: ports flowing, no port backups, marketplace GMV growth rates consistent with prior quarters in the mid-to-high 20s, broad-based.
• Scot Ciccarelli (Truist) reconciled the +50%/+15% advertising/membership growth rates against the ~4% growth in the membership-and-other P&L line. Rainey: the line includes "membership and other" with sustainability income (recycling revenue) as a meaningful component — a useful disclosure for modelers since the +4% line had been a confusion point on the Street.
• Robby Ohmes (BofA) asked about deflation/inflation through the GM categories. Rainey: GM has been deflationary low-single-digit for over a year; units grew in the quarter; consumer-pressure-driven shift toward necessities continues. Furner extended with category color — toys, kids' apparel, and baby strong; e-commerce mix favorable.
• Rupesh Parikh (Oppenheimer) asked about health and wellness sustainability. Furner: prescription growth ex-GLP-1 was over 10%; the new pharmacy delivery rollout drove new digital users (a useful customer-acquisition vector layered onto the core pharmacy business). Nicholas added the Sam's J.D. Power award context.
• David Bellinger (Mizuho) asked why the full year is reaffirmed if Q2 outcomes are too wide to bracket. Rainey: markups in Q2 may need to be partially offset by markdowns in Q3 and Q4; the full-year algorithm still works in the modeled scenarios but the inter-quarter swings are too wide to bracket. McLay added International color — quarterly choppiness expected; full-year International posture is unchanged from the Investor Day framing.
• Greg Melich (Evercore ISI) pressed on the time-lag for tariff cost pass-through and the magnitude. McMillon: cost flow-through began in late April and accelerated in May; food inflation top-of-mind; tariff-driven cost pressure plays through the year on imported items, with seasonal items disproportionately exposed.
• Krisztina Katai (Deutsche Bank) asked about marketplace strategic priorities and the in-store-vs.-marketplace GM elasticity. Furner emphasized assortment expansion, seller services, and Walmart Connect attribution data as the marketplace flywheel. McLay added International marketplace color (Canada/Mexico GMV +30%+; SKU count +80%).

What They're Not Saying

Three notable absences worth flagging:

1. No quantification of the Q1 e-commerce profitability magnitude or run-rate. Rainey explicitly declined to quantify the size of the prior loss or the Q1 profit ("I don't think I want to get into the magnitude of some of the losses that we've had historically"). This is consistent with the company's longstanding posture — it preserves competitive optionality and avoids creating a quarterly bar the Street will then re-anchor on. We read it as posture, not as concealment, but the durability of the consolidated profitability through the tariff-impacted period is therefore an open question that management has not committed to.
2. No specific Q2 OI range, even a wide one. Most companies in highly fluid environments will offer a wide range as a fence around outcomes. Walmart explicitly chose not to. Rainey's framing — "the range of outcomes for the quarter is so wide that it would be impractical to provide a range of operating income guidance that investors could credibly rely upon" — is candid but it does telegraph that the company is not yet confident in a Q2 outcome bound. We are interpreting the no-Q2-guide as the conservative posture that has driven the cadence pattern, with the full-year reiteration as the substantive commitment.
3. No incremental color on VIZIO integration progress against milestones. Furner described VIZIO integration as "early stages" with "plans we have for VIZIO the rest of the year" but did not quantify the integration trajectory. We had flagged at Q4 that we would look for VIZIO integration milestones at the April 8-9 Investor Day; the call did not provide them. We are reading this as deferred to subsequent earnings or to a later capital-markets event.

Market Reaction

The print landed BMO Thursday May 15. The market reaction was muted — shares were largely unchanged in pre-market, traded in a narrow range around the prior close through the session, and were essentially flat into the next-day close. The muted reaction is consistent with a print that confirms an already-tracked thesis: nothing in the print or the call materially shifted the consensus modeling framework, and the no-Q2-guide reinforces a wait-and-see posture for Street models that were positioned for a quarter or two of margin distortion. The lack of a sell-off in response to the no-Q2-guide is itself informative — it signals the market understood the accounting-timing framing rather than reading it as a fundamentals concern. The lack of a rally on the e-commerce profitability milestone is, in our reading, a missed opportunity by the equity rather than a dismissal of the milestone — the structural shift in second-P&L economics will compound through the multi-year window.

Street Perspective

The buy-side debate post-print clusters around three poles:

• The bull case being made on the Street: The print confirms the multi-year algorithm. The U.S. e-commerce profitability inflection arrived ahead of base-case timing; the alt-profit-pool composition step-up (advertising + membership ~25% of OI, per Rainey) is now a structural feature of the equity. The conservatism cadence remains intact — a four-data-point pattern of clearing deliberately-measured guides. The full-year reiteration within the modeled tariff scenarios is the affirmation that matters; the no-Q2-guide is an accounting-timing statement that should be read aggregate-of-Q2-Q3-Q4. Buyback acceleration at the dislocation is confidence-revealing.
• The bear case being made on the Street: The withheld Q2 OI guide is too convenient given the RIM-markup mechanics that should structurally flatter Q2; the Q3-Q4 markdown reversal is the real risk and the company is implicitly signaling that risk by declining to bracket Q2. Tariff exposure on China-sourced electronics and toys is concentrated in the holiday quarter and remains unhedged. The valuation cushion that the post-Q4 sell-off created has been partially worked off, leaving little room for Q2-Q3 surprise.
• The middle ground: The thesis is confirmed and the cadence remains, but the tariff overhang means a wider distribution of near-term outcomes than the equity's full multiple typically prices in. Underwrite the full year; expect noise quarter-to-quarter; preserve dry powder for any meaningful dislocation around Q2 or in response to a tariff-policy shock.

Our read aligns most closely with the middle ground for tactical sizing but the bull case for fundamental positioning. The cadence pattern is too well-established, and the structural shift in second-P&L economics too consequential, to fade on tariff-timing concerns we believe management has the operational toolkit to navigate. We are maintaining Outperform rather than stepping up because we want to see one more quarter through the tariff-impacted period before reclassifying to a conviction tier.

Model Implications

Our base-case adjustments to the FY26 model after this print:

• FY26 sales: Reiterating ~+4% CC growth (in line with company guide and our prior model). Reported sales pressured by FX (~120 bps headwind into Q2 if rates hold). Walmart U.S. comp algorithm holds at ~+4-4.5% with grocery mid-single-digit, GM deflation continuing low-single-digit but with positive units. International CC strength offsetting Walmex chop.
• FY26 operating income: Reiterating mid-to-high-single-digit OI growth (CC) within the modeled tariff scenarios. The Q1 print supports our prior framework; we are not adjusting for the U.S. e-commerce profitability inflection arriving earlier because we had it in the H2 FY26 base case — the timing pull-in is conservatism cadence ratification rather than upside vs. our model. We are absorbing the Q2 RIM-markup-then-Q3-Q4-markdown sequencing as a quarter-pattern adjustment without changing the FY total.
• FY26 adjusted EPS: $2.55 midpoint (vs. company guide $2.50-$2.60). The Q1 $0.61 print is ahead of the implied Q1 within that range, supporting our above-low-end positioning.
• U.S. e-commerce profitability path: Pulled forward to Q1 actual (versus prior H2 FY26 base case). We continue to underwrite quarterly progression of the alt-profit-pool composition step-up with advertising and membership combined contributing the bulk of the year-over-year OI growth.
• Buyback: Stepping up FY26 buyback assumption to ~$15B (from $10B) given Q1 $4.6B pace and management's explicit signal of a higher-than-FY25 full-year. CapEx held at 3.25% of sales (midpoint of guided range).
• Valuation: At post-print levels around the high-$90s on continued FY26 EPS estimate of $2.55-$2.70 depending on where in the modeled-scenario range the year lands, the equity trades at a forward P/E in the high-30s — full but in line with the consumer-staples-plus-tech-platform franchises Walmart now competes with for capital. Modest upside from the post-print level on the cumulative confirmation of the algorithm and the FY27 jumping-off implication.

Thesis Scorecard

Overall: The pillars hinge on the multi-year algorithm and the structural mix-shift; both are reconfirmed. The U.S. e-commerce profitability inflection arrived ahead of our underwritten timing — a meaningful positive that we are not separately stepping up on because the conservatism cadence had already been priced into our framework as the timing risk. The Hold-gating concerns from initiation either remain at multi-year tail-risk classification or have been further mitigated. The tariff/RIM-accounting watch-item is real but framed by management with credibility and the operational toolkit to navigate. The cadence pattern is now four data points and is, in our view, a structural feature of the equity story rather than a transient phenomenon. Maintaining Outperform.