Walmart Raises Full-Year Guidance, but U.S. Comparable Sales Growth Slowed to Just 2.6%. Here's What Investors Need to Know.

Shares of Walmart (NASDAQ:WMT) were down 9% on Thursday, as investors balked at weaker-than-expected comparable sales growth in the quarter. Its EPS guidance for the third quarter and full year was worse than the Wall Street consensus, even as the company raised its guidance for the year.

The decline showed in part how high Walmart stock had run earlier as the company has successfully reinvented itself as an omnichannel retailer, attracted more upscale customers, and beaten back the challenge from Amazon.

However, investors may have overestimated the company's momentum as the stock was trading at a price-to-earnings ratio above 40 earlier this year, a level usually reserved for growth stocks, rather than defensive plays like Walmart.

The results weren't exactly bad, but they signal a slowdown for the business, and they show that the gap between expectations and reality may have grown too wide.

Let's take a closer look at the numbers.

Image source: Walmart.

Is Walmart's growth spurt over?

Walmart reported comparable sales growth of 2.6%, its slowest pace in more than six years. New pharmacy-pricing regulations had an 80-basis-point impact on comps, and without that, same-store sales would have been 3.4%, which is still down from 4.1% in the first quarter.

E-commerce sales were a strong point, up 23% in the quarter, but in-store sales declined, a sign that customers are becoming more selective with their shopping, and reflecting the change in pharmacy prices. As further evidence of that shift, at Sam's Club, comparable transactions were up 7%, but average ticket was down 2.5%, showing customers are shopping more frequently but purchasing less per trip.

Walmart continued to see success from newer businesses, including e-commerce, and its global advertising business was up 38%. Membership fee revenue rose 17%, a sign that Walmart+ continues to gain traction.

Overall revenue rose 5.9% to $187.9 billion, beating estimates at $186.8 billion, and adjusted earnings per share rose from $0.68 to $0.81, though that includes a $2.9 billion benefit in tariff refunds.

Walmart reinvested some of that windfall in lower prices, and gross margin rose 96 basis points in the quarter, primarily due to the tariff refund. Walmart did not provide results adjusted for the tariff refund. The company also raised its outlook for fiscal 2027, calling for adjusted EPS of $2.80-$2.87, up from a previous range of $2.75-$2.85, though that was below the consensus at $2.87.

What it means for investors

The slowdown in comparable sales is the most concerning part of the report.

Walmart thrived during the pandemic and the earlier inflationary period, led by its strength in groceries and the expansion of its grocery pickup kiosks, which helped fuel the company's growth and drove e-commerce adoption.

The slowdown also comes as Target is resurgent after years of losing market share to Walmart, showing Walmart may have new competition to contend with.

One quarter of 2.6% comparable sales growth isn't a concern, but if it continues to slow down, the stock could be in trouble as it still trades at a premium. Investors should keep their eye on same-store sales over the back half of the year as the stock could still had significantly lower if that metric declines.

Jeremy Bowman has positions in Amazon and Target. The Motley Fool has positions in and recommends Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.