Walmart Q2: Revenue +5.9% to $187.9B, but net income falls 9.4% on non-operating losses

The DOJ opioid civil litigation, previously set for trial in November 2027, has been settled for an immaterial amount. This removes a significant pending federal enforcement action.

The False Claims Act qui tam action, previously in motion-to-dismiss stage, has been settled for an immaterial amount. This resolves a federal enforcement matter.

New disclosure of a $100 million FTC/state settlement over Spark Driver platform practices, with $37 million accrued. This is a material new regulatory resolution.

The number of opioid MDL cases against Walmart dropped from approximately 250 to 118, reflecting settlements and dismissals over the year.

The number of Asda equal value claimants increased from approximately 70,000 to 77,000, indicating growth in the class.

New disclosure of $2.9 billion in tariff refunds received during the quarter, recorded as a reduction to cost of sales. This is a material gain contingency.

Walmart discloses a one-time $2.9 billion tariff refund received in Q2 FY27, recorded as a reduction to cost of sales. This is a new, material item that significantly boosted gross profit and was partially reinvested in price investments.

The gross profit rate increase accelerated sharply from 4/8 bps to 96/53 bps, driven by the tariff refunds. The prior year's drivers (inventory management, higher-margin businesses) are no longer the primary explanation.

Operating expense leverage improved (11/22 bps vs 64/35 bps). The prior year included $0.4B legal charges; the current year's increase is driven by liability claims, depreciation, and healthcare costs, with the legal charges lapped.

A swing from net gains of $2.7B/$2.1B to net losses of $1.2B/$0.9B, driven by changes in fair value of equity investments. This is a significant non-operating swing that reduced net income despite higher operating income.

Effective tax rate declined significantly to 18.5%/20.7% from 23.3%/23.0%, driven by changes in unrecognized tax benefits rather than investment fair value changes. This contributed to net income despite the other gains/losses swing.

Walmart replaced its $20B program with a new $30B authorization, leaving $25.1B remaining. This is a significant increase in authorized buyback capacity.

Share repurchases decreased from $6.2B to $5.1B year-over-year, despite the larger authorization. The decrease was attributed to opportunistic pricing in the prior year.

Capital expenditures increased significantly to $14.2B from $11.4B, driven by higher supply chain, technology, and store/club investments. This contributed to lower free cash flow.

Free cash flow declined from $6.9B to $5.5B due to higher capital expenditures, partially offset by higher operating cash flow.

Working capital deficit widened to $26.9B from $21.5B, driven by higher short-term borrowings and timing of payments. This is a notable liquidity metric change.

Walmart changed its segment allocation methodology for corporate overhead, which affects comparability of segment operating income. This is a new disclosure that investors should note when comparing segment results.

Walmart U.S. comparable sales growth slowed to 3.3%/3.8% from 4.7%/3.9%, with a new headwind from maximum fair price regulation on prescription drugs. The prior year's strength was across all categories.

Sam's Club raised annual membership fees effective May 1, 2026, a new disclosure that will impact membership income over the next year.

International gross profit rate decline narrowed significantly to 15/8 bps from 80/73 bps, reflecting improved eCommerce margins and business mix, though price investments continue.

Consolidated operating income rose to $9.4 billion for the quarter and $16.9 billion for the six months, up from $7.3 billion and $14.4 billion in the prior-year periods. The increase reflects higher revenue and improved segment profitability.

Quarterly consolidated net income declined to $6.5 billion from $7.2 billion, while six-month net income rose to $12.0 billion from $11.8 billion. The quarterly decline reflects higher other losses and tax effects.

Net sales increased to $186.1 billion for the quarter and $361.8 billion for the six months, up from $175.8 billion and $339.7 billion in the prior-year periods. Growth was broad-based across segments.

The Company disclosed receipt of approximately $2.9 billion in tariff refunds during the quarter, recorded as a reduction to cost of sales. This is a new disclosure not present in the prior-year filing.

The Company changed its segment allocation methodology for certain corporate overhead allocations effective February 2026, and revised prior period amounts for comparability. This affects the comparability of segment operating income figures.

The DOJ opioid civil litigation was settled for an immaterial amount, replacing the prior disclosure of pending claims and a scheduled trial. The False Claims Act litigation was also settled for an immaterial amount.

The Company reached a settlement with the FTC and certain states regarding its Spark Driver platform, agreeing to a $100 million judgment with approximately $37 million accrued. This replaces the prior disclosure of ongoing investigations and discussions.

The disclosure was updated to reflect multiple show cause notices issued at various times since July 2021, rather than a single notice. The scope of the matters appears to have broadened.

The Company issued $4.23 billion of long-term debt in the current period, compared to $3.98 billion in the prior-year period. The new issuances have different maturities and interest rates.

The Company recorded a $0.4 billion benefit to income tax expense and a $0.5 billion reduction of interest expense related to changes in unrecognized tax benefits. This is a new disclosure not present in the prior-year filing.