Walmart Inc. (NASDAQ: WMT) reported adjusted earnings of 81 cents per share for the quarter, beating the consensus estimate of 74 cents. Sales reached $187.9 billion, surpassing the $186.8 billion expectation.

The retailer highlighted its artificial intelligence assistant, Sparky, noting that customers using the tool spend 40% more per order than those who do not. This metric underscores Walmart’s strategic push to integrate AI into its shopping and sales operations.

What the Numbers Show

Walmart’s ability to drive a 40% increase in average order value through AI suggests that technology adoption is directly translating into higher basket sizes. With sales beating estimates by $1.1 billion, the operational leverage from digital tools appears to be supporting top-line growth beyond standard seasonal trends.

Other Market Movers

Alibaba Group Holding Ltd. (NYSE: BABA) reported fiscal first-quarter 2027 revenue of $39.64 billion, up 9% year over year and above the $38.63 billion analyst estimate. However, adjusted earnings per ADS fell 42% to $1.26, missing expectations of $1.85. Net income plunged 75% to $1.54 billion.

Broadcom Inc. (NASDAQ: AVGO) is discussing a financing package with lenders that could include $60 billion to $70 billion of senior secured debt and roughly $30 billion of junior debt. The structure could bring total financing to as much as $100 billion.

Analog Devices Inc. (NASDAQ: ADI) reported fiscal third-quarter revenue of $4.02 billion, up 40% year over year and above the $3.92 billion consensus estimate. The quarter marked the company’s first time topping $4 billion in revenue.

Sector Updates

Amazon.com Inc. (NASDAQ: AMZN) increased its planned investment in northwest Louisiana to $18 billion from $12 billion, including a third data center campus in Shreveport. Prime Air is set to expand drone delivery operations to nearly 500 cities and towns across the U.S. by the end of 2026.

Stripe and Advent International are in talks to buy PayPal Holdings Inc. (NASDAQ: PYPL). Negotiations follow a July proposal of $60.50 per share, which was viewed as too low.

Nokia plans to cut most of its mainland China workforce and close operational sites in stages by year-end. SK hynix Inc. (NASDAQ: SKHY) is considering a large manufacturing expansion in Japan and announced plans to buy back and cancel 40 trillion won ($29 billion) worth of treasury stock.

Walmart Inc. (NASDAQ: WMT) shares fell sharply after the retailer reported second-quarter earnings that beat estimates but issued third-quarter guidance below Wall Street expectations. U.S. comparable sales growth slowed to its weakest pace since 2020.

The company reported quarterly sales of $187.937 billion, beating the analyst consensus estimate of $186.794 billion by 0.61%. This represents a 5.94% increase over sales of $177.402 billion in the same period last year. Adjusted earnings per share came in at $0.81, surpassing the consensus estimate of $0.74.

Business Performance and Headwinds

Walmart U.S. comparable sales increased 2.6%, driven by higher transactions. This marks the retailer’s smallest quarterly increase since 2020. Pharmacy deflation tied to new maximum fair price regulations, which took effect January 1, created a 125-basis-point headwind to comparable sales. Walmart expects a similar headwind for fiscal 2027.

DA Davidson analyst Michael Baker noted that the slowdown was mainly due to incremental weakness among low-income consumers driven by higher gas prices. Excluding Health & Wellness, US comps improved 3.4%, while core merchandise categories remained in the 3%-4% range, BTIG analyst Robert Drbul stated.

Sam’s Club U.S. comparable sales climbed 4.4%, supported by 7% transaction growth. International sales rose nearly 8% in constant currency, led by 9.7% growth in China. E-commerce now represents more than 23% of Walmart U.S. sales, with stores fulfilling about 80% of e-commerce orders and all fast deliveries.

Global e-commerce sales grew 23%. Global advertising revenue increased 38%, while global membership fee revenue rose 17% during the quarter.

AI Strategy and Sparky Growth

CEO John Furner highlighted the company’s push to integrate artificial intelligence into shopping and operations. Customers using Walmart’s AI assistant, Sparky, spend 40% more per order than those who do not use it. The number of Sparky users increased 70% year-over-year.

Furner noted that Sparky helps personalize shopping, such as generating meal plans and recognizing previously purchased ingredients to avoid duplicates. In one example, a customer asked for a weekly high-protein meal plan, and Sparky returned recipes and meal kits for one-click addition to the cart. The tool is also central to advertising ambitions, with tests of “Sponsored Prompt” ads inside the chatbot and a partnership with OpenAI to allow ChatGPT users to buy Walmart products directly. This strategy mirrors rival Amazon.com Inc.’s (NASDAQ: AMZN) push into Sponsored Prompts inside its own AI assistant, Rufus. Furner stated that AI will improve nearly every part of the business.

Financial Metrics and Balance Sheet

Operating income expanded significantly, rising 28.8% (or 17.4% adjusted in constant currency). This growth was primarily impacted by tariff refund impacts received during the quarter, which added about 750 basis points to operating income growth. These refunds were partially offset by price investments. Gross profit rate improved by 96 basis points to 25.4%.

Operating cash flow increased $1.4 billion to $19.7 billion. However, free cash flow declined $1.4 billion to $5.5 billion. The company repurchased 42.3 million shares for $5.1 billion year to date. Global inventory increased 6.3% year-over-year to $61.6 billion.

Guidance and Outlook

During the conference call, executives confirmed that the company rolled back prices on 11,000 items in the United States during the second quarter. The annual forecast assumes slightly stronger second-half sales than previously expected, driven by price investments, with fuel prices and tariffs remaining at current levels.

Walmart raised its fiscal 2027 adjusted EPS outlook to $2.80-$2.87 from $2.75-$2.85, though this remains below the consensus estimate of $2.90. The company also raised its fiscal 2027 sales outlook to $734.656 billion-$741.720 billion from $731.124 billion-$738.188 billion, missing the consensus estimate of $752.250 billion.

For the third quarter, Walmart expects adjusted EPS of 62 cents-64 cents, below the 68-cent estimate. It forecasts sales of $183.134 billion-$184.468 billion, compared with the $188.339 billion estimate. The timing of Flipkart’s Big Billion Days is expected to reduce third-quarter sales growth by more than 100 basis points. Additionally, the Vibe acquisition and integration is expected to create a 20-basis-point operating income headwind. Walmart expects more than $2 billion in additional fuel costs this year.

JPMorgan analyst Christopher Horvers noted that the trend is likely to improve due to a later back-to-school season, with the biggest weeks still to come. He stated that price investments are likely to drive better volumes and believes buy-side estimates will move up, not down.

Market Reaction and Analyst Revisions

Shares fell around 10% on Thursday after the retail giant reported second-quarter results and issued third-quarter guidance below estimates. At around $104.23, Walmart was down 8.81% at the time of publication. The stock closed at $103.59, down 9.15%, and gained 0.35% in pre-market trading on Friday. Shares slid further in early trading on Friday, declining 0.90% to $102.66. The stock is now trading below its 20-day SMA ($112.24), 50-day SMA ($114.42), 100-day SMA ($120.22), and 200-day SMA ($118.38).

Options markets signal substantial volatility. Walmart faces a 4.50% implied move, with $41.4 billion of market value at stake.

Broader market sentiment weighed on the stock. U.S. stocks traded lower midway through trading, with the Nasdaq Composite falling over 200 points on Thursday. The Dow traded down 0.84% to 53,015.12 while the NASDAQ fell 0.87% to 26,100.76. The S&P 500 also fell, dropping 0.41% to 7,676.76. Consumer staples stocks fell by 1.8%, while energy shares jumped by 1.5%.

Following the earnings announcement, several analysts revised their price targets downward:

• JPMorgan analyst Christopher Horvers reiterated an Overweight rating, slashing the price target from $137 to $125.
• Guggenheim Securities analyst John Heinbockel maintained a Buy rating, cutting the price target from $135 to $130.
• RBC Capital Markets analyst Steven Shemesh reiterated an Outperform rating, trimming the price target from $137 to $131.
• DA Davidson analyst Michael Baker reaffirmed a Buy rating, slashing the price target from $150 to $132.
• BTIG analyst Robert Drbul maintained a Buy rating, reducing the price target from $145 to $140.
• Baird analyst Peter Benedict maintained an Outperform rating, cutting the price target from $140 to $120.

Heinbockel described the combination of temporarily slowing sales and the stock’s premium valuation as a "tough combo," noting that the market’s adverse reaction to known headwinds was surprising. Shemesh highlighted that constant currency operating income excluding the IEEPA tariff refund grew around 9.8%, driven by high-margin businesses such as membership, advertising, and marketplace.

What the Numbers Show

The data reveals a sharp divergence between operational efficiency and top-line momentum. While gross margins expanded by 96 basis points to 25.4%—bolstered significantly by one-time tariff refunds which added 750 basis points to operating income growth—underlying sales growth has decelerated to its lowest level since 2020. The 125-basis-point headwind from pharmacy regulations highlights regulatory pressure on high-volume categories. Furthermore, the decline in free cash flow to $5.5 billion, despite a rise in operating cash flow to $19.7 billion, suggests that capital expenditures or working capital changes are absorbing the liquidity generated from operations. The guidance miss on both EPS and sales indicates that management sees these headwinds persisting into the next quarter. Meanwhile, the strong adoption metrics for Sparky suggest AI initiatives are gaining traction as a potential driver for future basket size growth.