Why did operating income decline if sales grew 4.8%?

Reported operating income fell 8.2% because of $440 million in legal charges, $150 million in business reorganization costs tied largely to Sam's Club supply chain changes, and about 560 bps of pressure from higher self-insured general liability claims. Excluding the one-time items, adjusted operating income was up 0.4% in constant currency, which is much slower than sales growth.

How much of the EPS increase was driven by investment gains rather than operations?

Most of the GAAP EPS jump was non-operational. GAAP EPS was $0.88 versus $0.56 a year ago, but after excluding a $0.26 net gain on equity and other investments, plus legal and restructuring charges, adjusted EPS was $0.68, up only 1.5%. The gains were primarily driven by an increase in the stock price of Walmart's investment in Symbotic.

What is the outlook for the rest of fiscal 2026?

For Q3 FY26, Walmart guided net sales growth of 3.75%-4.75% and operating income growth of 3.0%-6.0%, both in constant currency, with adjusted EPS of $0.58-$0.60. For the full year, net sales growth guidance was raised to 3.75%-4.75%, adjusted EPS guidance was raised to $2.52-$2.62, and adjusted operating income guidance was unchanged at 3.5%-5.5%. Q3 operating income guidance includes roughly a 140 bps headwind from the VIZIO acquisition.

Is Walmart's cash generation improving?

Yes. Operating cash flow increased $2.0 billion to $18.4 billion for the first half of fiscal 2026, driven by payment timing, lower cash tax payments, and higher operating income. Free cash flow rose $1.1 billion to $6.9 billion, although capital expenditures increased $0.9 billion to support the investment strategy. Walmart also repurchased $6.2 billion of stock year-to-date.

What are the main risks flagged by the filing?

The most prominent risk is the rising cost of self-insured general liability claims, which hurt profitability across Walmart U.S. and Sam's Club. Other risks include foreign currency headwinds (a $1.5 billion negative impact on quarterly sales), tariff and trade policy changes, and margin pressure from investments in growth initiatives in India, Canada, and Mexico. Sustained claims inflation and the ongoing investment cycle could keep operating income growth well below sales growth.

WMT 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 21, 2025. Cited figures are marked; the original filing is the authoritative source.

Walmart reported fiscal Q2 2026 (quarter ended July 31, 2025) results that were mixed on the headline line but solid on the underlying business.

Total revenues rose 4.8% to $177.4 billion^a (5.6% in constant currency), with net sales up 4.8% and eCommerce growing 25% globally. Walmart U.S. comparable sales rose 4.6%, driven by grocery, health & wellness, and eCommerce, while advertising grew 46% globally including VIZIO. Reported operating income fell 8.2% to $7.3 billion, weighed on by $440 million in legal charges, $150 million in business reorganization costs, and roughly 560 bps of drag from higher self-insured general liability claims.

Adjusted operating income was up only 0.4% in constant currency, a notable deceleration in the underlying profit trend that investors will want to watch. GAAP EPS more than doubled to $0.88^b from $0.56, but this was driven largely by a $2.7 billion net gain on equity and other investments, mainly the rise in Symbotic's stock price. Adjusted EPS was $0.68, up 1.5% year over year.

Cash generation improved, with operating cash flow up $2.0 billion to $18.4 billion^c and free cash flow of $6.9 billion, though capital expenditures continue to rise to support the investment strategy. Looking forward, Walmart guided third-quarter net sales growth of 3.75% to 4.75% in constant currency and operating income growth of 3.0% to 6.0%, and raised its full-year fiscal 2026 net sales growth outlook to 3.75% to 4.75%.

The full-year adjusted EPS range was raised to $2.52 to $2.62^d, though adjusted operating income guidance was unchanged at 3.5% to 5.5%. The combination of a higher sales outlook with flat profit guidance suggests management expects margin pressure to persist, particularly from insurance claims costs and investments in growth.

02—Key points

Key Highlights

Total revenues of $177.4B, up 4.8% (5.6% constant currency); global eCommerce grew 25% and global advertising grew 46% including VIZIO.
Reported operating income fell 8.2% to $7.3B, including $440M in legal charges and $150M in business reorganization costs; adjusted operating income rose 0.4% in constant currency.
Walmart U.S. comparable sales rose 4.6% with transactions up 1.5% and average ticket up 3.1%, while Walmart U.S. operating income rose 2.0% to $6.7B.
GAAP EPS of $0.88 (up 57%) was inflated by a $0.26 net per-share gain on equity investments; adjusted EPS was $0.68, up 1.5%.
Operating cash flow rose $2.0B to $18.4B and free cash flow reached $6.9B for the six months; $6.2B was spent on share repurchases year-to-date with $5.9B remaining under the authorization.
Full-year FY26 net sales growth guidance was raised to 3.75%-4.75% and adjusted EPS guidance to $2.52-$2.62, while adjusted operating income guidance was held at 3.5%-5.5%.
Self-insured general liability claims expense remained a significant headwind, cutting roughly 560 bps from consolidated adjusted operating income growth.

03—Questions

Frequently Asked Questions

Why did operating income decline if sales grew 4.8%?
Reported operating income fell 8.2% because of $440 million in legal charges, $150 million in business reorganization costs tied largely to Sam's Club supply chain changes, and about 560 bps of pressure from higher self-insured general liability claims. Excluding the one-time items, adjusted operating income was up 0.4% in constant currency, which is much slower than sales growth.
How much of the EPS increase was driven by investment gains rather than operations?
Most of the GAAP EPS jump was non-operational. GAAP EPS was $0.88 versus $0.56 a year ago, but after excluding a $0.26 net gain on equity and other investments, plus legal and restructuring charges, adjusted EPS was $0.68, up only 1.5%. The gains were primarily driven by an increase in the stock price of Walmart's investment in Symbotic.
What is the outlook for the rest of fiscal 2026?
For Q3 FY26, Walmart guided net sales growth of 3.75%-4.75% and operating income growth of 3.0%-6.0%, both in constant currency, with adjusted EPS of $0.58-$0.60. For the full year, net sales growth guidance was raised to 3.75%-4.75%, adjusted EPS guidance was raised to $2.52-$2.62, and adjusted operating income guidance was unchanged at 3.5%-5.5%. Q3 operating income guidance includes roughly a 140 bps headwind from the VIZIO acquisition.
Is Walmart's cash generation improving?
Yes. Operating cash flow increased $2.0 billion to $18.4 billion for the first half of fiscal 2026, driven by payment timing, lower cash tax payments, and higher operating income. Free cash flow rose $1.1 billion to $6.9 billion, although capital expenditures increased $0.9 billion to support the investment strategy. Walmart also repurchased $6.2 billion of stock year-to-date.
What are the main risks flagged by the filing?
The most prominent risk is the rising cost of self-insured general liability claims, which hurt profitability across Walmart U.S. and Sam's Club. Other risks include foreign currency headwinds (a $1.5 billion negative impact on quarterly sales), tariff and trade policy changes, and margin pressure from investments in growth initiatives in India, Canada, and Mexico. Sustained claims inflation and the ongoing investment cycle could keep operating income growth well below sales growth.

04—Continue

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