Walmart (WMT) 2027 Q1: Underlying fundamentals remain robust; EBIT growth required to sustain momentum

Zhihan Ma, CFA+1 917 344 8303zhihan.ma@bernsteinsg.comJeremy Miles, CFA+1 917 344 8370jeremy.miles@bernsteinsg.com US Retailing Broadlines & Hardlines Walmart Inc Price Target WMT 145.00 USD Walmart (WMT) 1Q27: Fundamentals intact; EBIT growth needed WMT delivered a top line beat but faced fuel-related cost headwinds in Q1, with+5.7% constant currency net sales growth (vs. previous guide of 3.5%-4.5%) and an 5.1% Close Date21 May 2026WMT Close Price (USD)121.34Price Target (USD)145.00Upside/(Downside)19%52-Week Range135.16/93.43SPX7,445.72FYEJanDiv Yield0.8%Market Cap (USD) (M)967,200EV (USD) (B)1,037.29 adjusted cc EBIT growth (vs. previous guide of 4-6%). EBIT growth was negatively impactedby higher fuel costs in distribution and fulfillment operations by -250bps, which WMTabsorbed in Q1. WMT US comp of 4.1% (ex fuel) was slightly above consensus of 4.0%. As expected, WMT reiterated its FY27 guidance, which we continue to see asconservative. WMT expects cc net sales growth of 3.5% - 4.5% (vs. consensus of 5.0%),cc adj. EBIT growth of 6.0% - 8.0% (vs. consensus of 12.6%), and adj. EPS of $2.75 - $2.85(vs. consensus of $2.92). For Q2, WMT expects cc net sales growth of 4.0%-5.0% (vs.consensus of 5.2%), cc EBIT growth of 7.0%-10.0% (vs. consensus of 8.9%), and adj. EPS of$0.72-$0.74 (vs. consensus of $0.75). We find the selloff in response to earnings a bit overdone. We maintain conviction inWMT US’ e-commerce driven profitability improvement momentum, led by retail mediagrowth, and reduced e-commerce fulfillment/delivery costs. Global advertising revenue grew37% in Q1, including 44% for Walmart Connect in the US. Meanwhile, WMT is lapping easycomps from last year’s general liability accrual (~$1B) and Vizio integration costs (~$200M).We see a path for WMT to growth EBIT mid-teen’s this year, after accounting for some Investment Implications We rate WMT Outperform, with a TP of $145.00. DETAILS MODEL ADJUSTMENTS We make changes to our estimates after earnings. We expect greater comp sales for Q2, as all 3 segments benefit from eventsthis summer (e.g., World Cup). We update our gas and FX assumptions, which are a further tailwind to sales. We adjust our nearterm gross margin estimates for all 3 segments, given ongoing cost pressure from high fuel prices. We also increase SG&Agrowth rate for Sam’s and Walmart International, to reflect e-commerce mix pressure and labor/store investments respectively.We make adjustments to debt repayment cadence and other items below the line. This brings our EPS estimates to $3.09 for We set a $145 target price (unchanged) using a P/E multiple of 39.0x (unchanged) against our forward Q5-Q8 EPS estimate of$3.71 (unchanged), as we roll our model. Q1 RESULTS In Q1 2027, net sales grew by +7.1% to $175.7B (+150bps above consensus). The constant currency net sales growth was5.7%. Gross margin was 24.3%, in line with consensus and +10bps YoY. Adjusted EBIT grew +5.1% YoY on a constant currencybasis. These results include a -250bps fuel cost headwind from distribution and fulfillment. Adjusted EPS of $0.66 was in line with consensus. Adjusted EPS excludes -2c from net gains on equity and other investments,partially offset by 1c of business reorganization charges. By segment,Walmart USgrew comp sales by 4.1% ex fuel (vs. consensus of 4.0%), led by +3.0% of transaction growth and+1.0% of ticket growth. Strength in quarter was driven by grocery (+MSD) and health & wellness (+LSD, decel from MSD priorgiven drug pricing impacts), with gen merch up +MSD (acceleration from +LSD). Management called out maximum fair pricing(health & wellness) as a 100bps headwind (limited profit impact). Management continues to call out share gains across incomebrackets, led by upper-income consumers (trade down). E-commerce contributed ~530bps to Walmart US comp sales growththis quarter. Once more, this implies negative brick-and-mortar comp. Adj. operating income grew 5.7% to $6.0B, with e- Sam’s ClubUSgrew comp sales by 3.9% ex fuel (vs. consensus of 3.6%), driven by transaction growth of +6.2% while ticketwas down -2.2%. Membership income grew +5.6% with steady growth in membership (incl. Plus) and renewal rates. E-commerce grew +23%, contributed ~400bps to Sam’s Club comp sales, and now represents ~20% of net sales ex fuel. Walmart Internationalgrew net sales by +10.1% on a constant currency basis (vs. consensus of 5.5%), led by growth inChina (+22.3%) which saw double-digit growth during Lunar New Year. Currency fluctuations were a $2.3B tailwind to sales. E-commerce sales grew by 27%, driven by store-fulfilled pick-up & delivery and marketplace. APPENDIX - FINANCIAL FORECASTS BERNSTEIN TICKER TABLE DISCLOSURE APPENDIX I. REQUIRED DISCLOSURES References to "Bernstein" or the “Firm” in these disclosures relate to the following entities: Bernstein Institutional Services LLC(April 1, 2024 onwards), Sanford C. Bernstein & Co., LLC (pre April 1, 2024), Bernstein Autonomous LLP, BSG