Stalling U.S. Comparable-Store Sales Growth Tests Premium Valuation, While Earnings Resilience Continues to Support Walmart's Long-Term Competitiveness

Overview

The report assesses Walmart's 2Q26 results, subsequent earnings forecasts, and valuation. Its central conclusion is that the unexpected slowdown in U.S. comparable-store sales weakens the growth narrative underpinning the approximately 35x P/E, but market-share gains, alternative profit streams, and operating income growth still demonstrate resilient fundamentals. Until growth is validated again, the valuation leads Deutsche Bank to maintain its Hold stance.

Core views

The key divergence in Walmart's 2Q26 results was the simultaneous occurrence of an earnings beat and a slowdown in core U.S. sales. Adjusted EPS was USD 0.81, above Deutsche Bank's USD 0.67 forecast, the market expectation of USD 0.66, and the company's USD 0.63—0.65 guidance, although approximately USD 0.05 of earnings came from tariff refunds. Walmart U.S. comparable-store sales grew 2.6%, below Deutsche Bank's 3.0% estimate and the market's 3.7% expectation, marking the slowest growth in six years and the first consensus miss since 4Q19. Sam's Club comparable-store sales, meanwhile, grew 4.4%, above Deutsche Bank's 3.5% forecast and the market's 4.0% estimate. Growth in the U.S. business was driven by both transaction count and average ticket, while at Sam's Club, transaction growth was partly offset by a lower average ticket. The U.S. business also showed cooling growth momentum internally. E-commerce sales grew 24%, with two-year stacked growth of 50%, compared with 26% and 47%, respectively, in 1Q; e-commerce contributed 510 basis points to comparable-store sales, but its contribution slowed from 1Q. Grocery comparable-store sales maintained mid-single-digit growth, supported by higher volumes and market-share gains. Quarterly food inflation was 1.3%, with egg deflation creating an approximately 60-basis-point drag. Health and wellness shifted from low-single-digit growth in the prior quarter to a low-single-digit decline: prescription volumes and market share both grew at mid-single-digit rates, but the Medicare Maximum Fair Price program (MFP) had an approximately 900-basis-point negative impact. General merchandise grew only in the low single digits, below the mid-single-digit growth recorded in 1Q, with toys and apparel relatively strong. Transaction count increased for the 17th consecutive quarter, but growth slowed from 3.0% in 1Q to 1.5%; average-ticket growth also slowed from 2.6% to 1.1%. These figures underpin the report's primary concern about slowing underlying U.S. comparable-store sales trends. Profit performance was considerably more resilient. Walmart U.S. gross margin expanded by 158 basis points, far above the 29-basis-point expansion in 1Q, benefiting from net gains on tariff refunds and a better business mix, partly offset by markdown investments and higher fuel costs. Sam's Club's gross margin excluding fuel expanded by 85 basis points, versus a 12-basis-point contraction in 1Q; tariff-refund benefits were similarly offset by price investments and distribution and fulfillment costs associated with delivery growth. More importantly, operating income still grew nearly 10% on a constant-currency basis and excluding tariff refunds. Management also raised its sales, EBIT, and EPS guidance, supporting the report's conclusion that the long-term margin-expansion thesis remains intact. Near-term trends are not deteriorating across the board. Management indicated that July improved from June and August strengthened further, with encouraging back-to-school demand. The number of rollback items increased by more than 50% quarter over quarter to approximately 11,000, the highest level in recent periods. The report believes more attractive pricing could drive volume and market share and continue generating returns in 3Q, with some price cuts potentially becoming permanent. The bull case also includes the following: comparable-store growth excluding health and wellness was consistent with recent quarters; alternative revenue streams and incremental profit continued to grow; and operating margin still grew faster than sales despite consumer pressure and higher fuel costs. Walmart's scale, omnichannel capabilities, continued market-share gains, and expanding alternative profit streams continue to be viewed as durable competitive advantages. The bear case centers on the sustainability of growth and the cost of achieving it. After the recent rollback initiatives end, underlying U.S. comparable-store sales trends could slow further; consumers remain under pressure, and fuel prices remain elevated. Pressure on health and wellness is expected to persist into 2027, when the MFP list expands and the tailwind from GLP-1 prescriptions weakens. If Walmart needs to invest more heavily in price reductions, gross margin could also come under pressure. The report therefore believes the burden of proof has shifted back to management: to drive further multiple expansion, the company must demonstrate that it can sustain 3%—4% Walmart U.S. comparable-store sales growth while delivering high-single-digit or better EBIT growth. Earnings forecasts reflect a combination of sales caution and margin improvement. Deutsche Bank lowered its 3Q26 adjusted EPS forecast from USD 0.65 to USD 0.63, below the market's USD 0.68 estimate but within the company's USD 0.62—0.64 guidance range. Comparable-store sales forecasts for Walmart U.S. and Sam's Club were maintained at 3.0% and 4.0%, respectively, below the market's 3.8% and 4.3% estimates. Gross margin is expected to expand by 36 basis points, versus the previous forecast of 15 basis points; however, the forecast for selling, general, and administrative expense growth was raised from 5.7% to 7.5%, resulting in a 6-basis-point year-over-year decline in EBIT margin, compared with the previous forecast of a 4-basis-point decline. The adjusted EBIT forecast was lowered from USD 7.533 billion to USD 7.336 billion, below the market's USD 7.928 billion estimate, implying a margin of 3.9%, versus the previous and market forecasts of 4.0% and 4.2%, respectively. For the full year, Deutsche Bank raised its 2026 adjusted EPS forecast from USD 2.87 to USD 2.91, slightly above the market's USD 2.90 estimate and the company's USD 2.80—2.87 guidance. The model assumes Walmart U.S. comparable-store sales growth of 3.0%, below the previous 3.1% forecast and the market's 3.8% estimate; Sam's Club comparable-store sales growth is forecast at 4.0%, above the previous 3.7% estimate and close to the market's 4.1% forecast. Company-wide gross margin is expected to expand by 42 basis points, compared with 16 basis points previously, while the selling, general, and administrative expense growth forecast was raised from 4.4% to 6.2%. The 2027 adjusted EPS forecast was raised from USD 3.17 to USD 3.19, but remains below the market's USD 3.28 estimate, based on net sales growth of 4.1% and operating income growth of 7.1%. The key FY27 challenge is that, as the pricing benefits from tariff refunds create a high comparison base, the company must also absorb additional pressure from the next phase of the MFP program. Deutsche Bank cut its price target by 6% from USD 120 to USD 113 using a sum-of-the-parts valuation. It applies a 37x P/E to the core Walmart business based on 2027 EPS excluding Flipkart and rolls the valuation base forward from 2026 to 2027. This multiple is consistent with the one-year average, reflecting both somewhat weaker comparable-store sales momentum and continued operating income growth, as well as Walmart's increasing importance to consumers across income cohorts. Flipkart is valued at 4.5x sales, consistent with its acquisition multiple. The report believes additional market-share gains and accelerated operating income growth could provide upside, while further slowing in comparable-store sales or e-commerce, sustained gross-margin contraction caused by increased investment, and higher expenses from labor and new-store investments represent downside risks. Overall, the report remains positive on Walmart's competitive position and long-term market-share opportunities, but maintains a wait-and-see stance due to the current valuation.

Analysis framework

The report first compares actual 2Q26 results with Deutsche Bank's forecasts, market consensus, and company guidance. It then breaks down U.S. comparable-store sales into e-commerce, grocery, health and wellness, general merchandise, transaction count, and average ticket to identify the sources of slowing growth. Next, it combines gross margin, expenses, and operating income excluding tariff refunds to assess whether profit expansion is sustainable and outlines the bull and bear cases. Finally, it updates its 3Q26, 2026, and 2027 earnings forecasts and derives the price target through a sum-of-the-parts valuation using a P/E multiple for the core business and a sales multiple for Flipkart.

Methodology notes

• Industry/Sector Analysis FrameworkPrice-Volume Decomposition

  Transaction Count and Average-Ticket Decomposition

  The report decomposes U.S. comparable-store sales growth into transaction count and average ticket, noting that they slowed from 3.0% and 2.6% to 1.5% and 1.1%, respectively, to identify the specific sources of weakening sales momentum.

• Competition and Strategy FrameworkMoat / competitive advantage

  Scale, Omnichannel Capabilities, and Market Share

  The report views scale, omnichannel capabilities, and continued market-share gains as Walmart's durable competitive moat, explaining why the company can use price investments to attract volume while developing alternative profit streams.

• Corporate Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating Income Growth Relative to Sales Growth

  The report tests the margin thesis by assessing whether operating income can continue to grow faster than sales, concluding that achieving 3%—4% U.S. comparable-store sales growth and high-single-digit or better EBIT growth is necessary evidence to support a higher valuation.

• Valuation MethodSOTP Valuation

  Separate Valuations of the Core Walmart Business and Flipkart

  The price target is calculated by separately valuing the core business excluding Flipkart and Flipkart itself, then adding the two values to reflect the different valuation bases applied to the assets.

• Valuation MethodPE/PEG valuation

  37x 2027 EPS

  The core Walmart business is assigned a 37x P/E based on 2027 EPS excluding Flipkart. The multiple is consistent with the one-year average and accounts for both slowing comparable-store growth and resilient operating income.

• Valuation MethodPS valuation

  Flipkart Valued at 4.5x Sales

  The report values Flipkart at 4.5x sales, consistent with its acquisition multiple.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Walmart Inc (WMT)

  The report recognizes the company's long-term competitive position and market-share opportunities, but sees a tension between slowing growth and the approximately 35x P/E, and therefore maintains a Hold rating.

  Strengths

  Scale advantages, omnichannel capabilities, continued market-share gains, volume growth driven by price investments, expanding alternative profit streams, and nearly 10% operating income growth even after excluding tariff refunds.

  Weaknesses

  U.S. comparable-store sales recorded their slowest growth in six years, transaction count and average ticket both slowed significantly, the health and wellness business faces MFP pressure, and the premium valuation demands rigorous growth delivery.

  Comparison

  2Q26 Walmart U.S. comparable-store sales grew 2.6%, below Deutsche Bank's 3.0% forecast and the market's 3.7% estimate; Sam's Club grew 4.4%, above Deutsche Bank's 3.5% forecast and the market's 4.0% estimate.

  Risks

  Further slowing in comparable-store sales and e-commerce growth, gross-margin contraction caused by increased markdown investments, and higher selling, general, and administrative expenses due to labor and new-store investments.

Key data

• 2Q26 Adjusted EPSUSD 0.81Deutsche Bank forecast USD 0.67, market expectation USD 0.66, and company guidance USD 0.63—0.65; includes approximately USD 0.05 of tariff-refund benefits.
• 2Q26 Walmart U.S. Comparable-Store Sales+2.6%Below Deutsche Bank's +3.0% forecast and the market's +3.7% estimate, marking the slowest growth in six years.
• 2Q26 Sam's Club Comparable-Store Sales+4.4%Above Deutsche Bank's +3.5% forecast and the market's +4.0% estimate.
• Walmart U.S. Gross-Margin Change+158 basis points+29 basis points in 1Q, driven by tariff refunds and improved business mix.
• Sam's Club Gross-Margin Change+85 basis pointsExcluding fuel; contracted by 12 basis points in 1Q.
• Walmart U.S. E-Commerce Growth+24%Two-year stacked growth of 50%, contributing 510 basis points to comparable-store sales.
• U.S. Transaction Count Growth+1.5%Growth for the 17th consecutive quarter, but 150 basis points slower than +3.0% in 1Q.
• U.S. Comparable-Store Average-Ticket Growth+1.1%Slower than +2.6% in 1Q.
• MFP Impact on Health and WellnessApproximately -900 basis pointsMid-single-digit growth in prescription volumes and market share was insufficient to offset the impact.
• Number of Rollback ItemsApproximately 11,000Increased by more than 50% quarter over quarter to the highest level in recent periods.
• 3Q26 Adjusted EPS ForecastUSD 0.63Previously USD 0.65; market USD 0.68; company guidance USD 0.62—0.64.
• 3Q26 Adjusted EBIT ForecastUSD 7.336 billionPreviously USD 7.533 billion, market USD 7.928 billion; implies a margin of 3.9%.
• 2026 Adjusted EPS ForecastUSD 2.91Previously USD 2.87; market USD 2.90; company guidance USD 2.80—2.87.
• 2027 Adjusted EPS ForecastUSD 3.19Previously USD 3.17, market USD 3.28; based on net sales growth of 4.1% and operating income growth of 7.1%.
• Price TargetUSD 113Previously USD 120, cut by 6%.
• Core Business Valuation Multiple37x 2027 EPSExcluding Flipkart, consistent with the one-year average.
• Flipkart Valuation Multiple4.5x salesConsistent with the acquisition multiple.

Impact & implications

The report believes Walmart's investment narrative is shifting from traditional comparable-store sales toward gross merchandise value, membership growth, market share, and margin expansion, but the market needs time to recalibrate to this framework. Profit growth and competitive advantages continue to support the long-term fundamentals, although slowing U.S. comparable-store sales have raised the burden of proof for the premium valuation. Management must consistently deliver 3%—4% U.S. comparable-store sales growth and high-single-digit or better EBIT growth to justify further multiple expansion.

Risks

• Underlying U.S. comparable-store sales trends could slow further after the recent rollback initiatives end.
• Continued consumer pressure and elevated fuel prices could weaken demand and increase operating costs.
• Pressure on the health and wellness business could persist into 2027 as the MFP list expands and the tailwind from GLP-1 prescriptions weakens.
• If Walmart invests more heavily in price reductions to drive market-share gains, gross margin could remain under pressure.
• Slowing comparable-store sales or e-commerce growth would make it more difficult to sustain a premium valuation multiple.
• Labor costs and new-store investments could keep selling, general, and administrative expenses elevated.
• Additional market-share gains or accelerated operating income growth represent the upside risks identified in the report.

What to watch

• Monitor whether Walmart U.S. can sustain 3%—4% comparable-store sales growth and high-single-digit or better EBIT growth.
• Track whether the improvement in July and August and encouraging back-to-school demand translate into sustained 3Q growth.
• Monitor the volume and market-share returns from approximately 11,000 rollback items and whether some price reductions become permanent.
• Track whether transaction count, average ticket, and e-commerce's contribution to comparable-store sales continue to slow.
• Monitor the high-base effect from tariff-refund pricing benefits in FY27 and the additional pressure from the next phase of the MFP program.
• Assess whether alternative revenue streams, operating margin, and management's raised sales, EBIT, and EPS guidance are achieved.