Walmart shares declined after the company released first-quarter results that tracked market expectations but did not provide the kind of upside that investors have grown used to over the past two years. Analysts at D.A. Davidson responded by reaffirming a "Buy" rating and keeping a $150 price target, saying the retailer's longer-term growth drivers remain intact.
Results versus expectations
On a comparable basis in the U.S., Walmart reported sales growth of 4.1% excluding fuel, which matched consensus estimates but represented the slowest pace in eight quarters. Adjusted operating income was $7.67 billion, slightly below Street expectations, while adjusted earnings per share of $0.66 came in line with forecasts.
Investors appeared disappointed that management did not raise its outlook. The company reiterated its prior guidance rather than upgrading it - a factor that weighed on sentiment for a stock trading at more than 40 times forward earnings after an extended period of strong performance.
Areas of strength
Despite the muted market reaction, D.A. Davidson highlighted several positive underlying trends. Walmart continued to take share in both grocery and general merchandise categories. The company reported a 3% rise in customer traffic, its strongest increase since late 2024. Grocery sales were described as posting mid-single-digit growth, while general merchandise showed meaningful improvement, aided by gains in fashion.
The report placed particular emphasis on Walmart's faster-growing, higher-margin operations. Marketplace sales jumped 50% year over year, contributing to a 26% increase in e-commerce revenue and marking the ninth straight quarter with online growth above 20%. Membership-related income increased 17.4%, reflecting expansion in Walmart Plus subscriptions and Sam's Club memberships. Advertising revenue grew 37%, further enhancing profitability from the company's digital ecosystem.
D.A. Davidson noted that these digital and membership-related lines - marketplace, memberships, and advertising - are progressively more important to Walmart's profit profile. The analysts estimate that these segments now contribute roughly one-third of total profits, giving the company a margin-expansion pathway beyond its traditional retail mix.
Guidance and the longer-term view
For the second quarter, Walmart guided to sales growth of 4% to 5% on a constant-currency basis and operating profit growth of 7% to 10%. Management signaled that full-year sales are expected to land at the high end of prior guidance. D.A. Davidson reiterated its view that Walmart's long-term operating equation remains intact, characterizing an "algorithm" of roughly 4% annual revenue growth and 4% to 8% operating profit growth.
The analysts also pointed to Walmart's stakes in Flipkart and PhonePe as potential upside catalysts ahead of any future public listings of those assets.
Market reaction and investor considerations
The share-price pullback appears tied to the absence of an upward revision to guidance and to the stock's current valuation multiple. While the quarter produced a string of positive metrics - including strong online growth, accelerating membership and advertising revenues, and improving traffic and merchandise trends - investors weighed those gains against a relatively high forward multiple and the lack of raised targets from management.
Bottom line
Walmart reported a quarter that largely met expectations and showcased notable growth in higher-margin, digital-related businesses. Management reiterated prior guidance, and analysts maintained a constructive long-term view while keeping a $150 price target. The company's mix shift toward marketplace, memberships, and advertising is presented as a key component of future margin expansion, even as the immediate market reaction reflected caution given valuation and the unchanged outlook.