10-Q: Walmart Reports Strong Q3 Growth, E-commerce Fuels Gains

Walmart Inc. announced robust revenue and net income growth for the third quarter and first nine months of fiscal 2026, driven by strong U.S. comparable sales and e-commerce expansion, despite increased operating expenses.

Summary

• Total revenues increased by $9.9 billion (5.8%) to $179.5 billion for the three months ended October 31, 2025, and by $22.1 billion (4.4%) to $522.5 billion for the nine months.
• Consolidated net income attributable to Walmart rose to $6.143 billion ($0.77 diluted EPS) for the three months, up from $4.577 billion ($0.57 diluted EPS) in the prior year.
• For the nine months, consolidated net income attributable to Walmart was $17.656 billion ($2.20 diluted EPS), compared to $14.182 billion ($1.75 diluted EPS) in the prior year.
• Walmart U.S. comparable sales grew 4.8% for the quarter and 4.2% for the nine months, with e-commerce contributing approximately 4.4% and 3.9% respectively.
• Sam's Club U.S. comparable sales increased 2.8% for the quarter and 3.0% for the nine months, with e-commerce contributing approximately 3.0% and 3.3% respectively.
• Walmart International net sales increased 10.8% for the quarter and 5.4% for the nine months, impacted by currency fluctuations.
• Gross profit rate increased by 2 basis points for the quarter and 6 basis points for the nine months, primarily due to Walmart U.S. disciplined inventory management and growth in higher-margin businesses.
• Operating expenses as a percentage of net sales increased by 28 basis points for the quarter and 33 basis points for the nine months, mainly due to a $0.7 billion non-cash charge related to PhonePe's share-based compensation modification and higher self-insured general liability claims expense ($0.8 billion for nine months).
• Other gains and losses showed net gains of $2.1 billion for the quarter and $4.2 billion for the nine months, primarily from changes in fair value of equity investments, compared to net losses in the prior year.
• Net cash provided by operating activities increased by $4.5 billion to $27.5 billion for the nine months.
• Free cash flow increased by $2.6 billion to $8.8 billion for the nine months.
• Capital expenditures increased by $1.9 billion to $18.6 billion for the nine months, supporting automation and store investments.
• Repurchased $7.0 billion in common stock during the nine months, an increase of $4.0 billion from the prior year.
• Annual dividend for fiscal 2026 approved at $0.94 per share, a 13% increase over fiscal 2025.

Sentiment

Score: 8

Explanation: The company demonstrated strong revenue and net income growth, particularly in its U.S. segments and e-commerce. Cash flow generation was robust, and the company increased its dividend and share repurchases. While operating income saw a slight decline due to specific charges and increased expenses, the overall financial health and strategic execution appear positive. The legal and macroeconomic risks are noted but are typical for a company of this scale.

Positives

• Strong total revenue growth of 5.8% for the three months and 4.4% for the nine months.
• Significant increase in consolidated net income attributable to Walmart: 34.2% for the three months and 24.5% for the nine months.
• Robust comparable sales growth in Walmart U.S. (4.8% for Q3) and Sam's Club U.S. (2.8% for Q3).
• E-commerce continues to be a strong growth driver, positively contributing to comparable sales in both U.S. segments.
• Gross profit rate improved, driven by disciplined inventory management and growth in higher-margin businesses in Walmart U.S.
• Net cash provided by operating activities increased by $4.5 billion to $27.5 billion for the nine months.
• Free cash flow increased by $2.6 billion to $8.8 billion for the nine months, demonstrating strong cash generation.
• Increased dividend by 13% to $0.94 per share for fiscal 2026.
• Significant share repurchases of $7.0 billion for the nine months, returning capital to shareholders.
• Net gains of $2.1 billion (Q3) and $4.2 billion (9 months) from fair value changes in equity and other investments.

Negatives

• Operating income decreased slightly by 0.2% for the three months and 1.7% for the nine months, despite revenue growth.
• Operating expenses as a percentage of net sales increased by 28 basis points for the three months and 33 basis points for the nine months.
• A $0.7 billion non-cash charge related to PhonePe's share-based compensation modification impacted operating expenses.
• Higher self-insured general liability claims expense in the U.S. of approximately $0.8 billion for the nine months.
• Walmart International operating income decreased by $0.5 billion for the three months and $0.9 billion for the nine months, partly due to channel/format mix shifts and the PhonePe charge.
• Negative impact of currency exchange rate fluctuations on Walmart International net sales ($0.2 billion for Q3, $4.0 billion for 9 months).
• Sam's Club U.S. operating income increased only slightly for both periods, impacted by associate wage investments, lower fuel sales, and higher general liability claims.
• Working capital deficit increased to $22.8 billion as of October 31, 2025, from $15.6 billion in the prior year, driven by payment timing and increased short-term borrowings.
• Return on Investment (ROI) decreased to 14.8% for the trailing 12 months ended October 31, 2025, from 15.1% in the prior year, due to increased average invested capital.

Risks

• Continued uncertainty in the global economy due to tariffs and trade restrictions, inflationary trends, fluctuations in global currencies, swings in macroeconomic conditions, volatility in employment trends, and supply chain pressures.
• Ongoing opioid-related litigation, including cases in the Multidistrict Litigation (MDL), state and federal courts, and Canada, with no assurance as to scope, outcome, or potential material adverse effects.
• DOJ civil litigation alleging unlawful dispensing and distribution of controlled substances, with trial scheduled for November 2027.
• Asda Equal Value Claims in the UK, with potential indemnification liability up to a contractually determined amount.
• Money Transfer Agent Services Matter, involving a DOJ investigation into consumer fraud prevention and anti-money laundering compliance.
• Driver Platform Matters, including FTC and State Attorneys General investigations regarding payment and operational practices, and civil litigation concerning independent contractor classification.
• Mexico Antitrust Matter, where a Walmex subsidiary was fined $93.4 million pesos (approximately $5 million USD) for alleged monopolistic practices, currently under appeal.
• Foreign Direct Investment Matters in India (Flipkart), involving alleged violations of FDI rules from 2009-2015, with potential monetary and/or non-monetary relief.
• India Antitrust Matter (Flipkart), alleging competition law violations, with an investigation report received and CCI's final order pending.
• Environmental matter with the U.S. Environmental Protection Agency (EPA) regarding Clean Air Act violations related to refrigeration leak detection, with potential penalties exceeding $1 million.
• Changes in credit ratings could increase future borrowing costs or impair access to capital markets.
• Cybersecurity events affecting Walmart and related costs and business disruption.
• Developments and disruptions related to the deployment of artificial intelligence technologies.

Future Outlook

The company expects continued uncertainty in its business and the global economy due to tariffs, trade restrictions, inflationary trends, currency fluctuations, macroeconomic conditions, employment volatility, and supply chain pressures. Management intends to adopt new accounting pronouncements for income tax and expense disclosures in future fiscal years, with no expected impact on financial condition or results of operations. Certain provisions of the One Big Beautiful Bill Act (Tax Act) are expected to decrease cash taxes paid in the current fiscal year and may change the timing of cash tax payments in future periods. The company believes its sources of liquidity will be sufficient to fund operations, investment activities, dividends, and share repurchases for at least the next 12 months and the foreseeable future, with the majority of share repurchases funded through free cash flow. Volatility in fuel prices may continue to impact the operating results of the Sam's Club U.S. segment.

Management Comments

• "We are committed to helping customers save money and live better through everyday low prices, supported by everyday low costs."
• "Our objective of prioritizing growth means we will focus on serving customers and members however they want to shop through our omnichannel business model."
• "Our objective of prioritizing margin focuses on growth by driving incremental margin accretion through a combination of productivity improvements, as well as category and business mix."
• "As we execute our financial framework, we believe our return on capital will improve over time."
• "We believe our sources of liquidity will continue to be sufficient to fund operations, finance our investment activities, pay dividends and fund our share repurchases for at least the next 12 months and for the foreseeable future."

Industry Context

The retail industry generally reports comparable sales using the retail calendar (4-5-4 calendar), and Walmart provides calendar comparable sales for consistency. The company operates in a highly dynamic tariff environment, with less than one-third of U.S. sales imported, primarily from China, Mexico, Vietnam, India, and Canada. The retail and related industries are experiencing rising costs to resolve general liability claims, impacting operating expenses. The company's focus on omnichannel offerings, digital advertising, and marketplace expansion aligns with broader industry trends towards integrated retail ecosystems and higher-margin digital services.

Comparison to Industry Standards

• The operating results of each reportable segment, including the mix of cost of sales and operating, selling, general and administrative expenses, are not directly comparable due to differences in business model, format and channel mix.
• The operating results of each reportable segment may not be comparable to those of other retailers.
• No specific comparable companies, projects, or results are listed for direct comparison within the filing.

Management Changes

Corporate Governance

Legal Proceedings

• Opioid-Related Matters: Settlement agreements with all 50 states, D.C., Puerto Rico, three U.S. territories, and most political subdivisions/Native American tribes for approximately $3.3 billion (accrued in fiscal 2023, paid by January 31, 2025). Remaining tribes have until February 24, 2026, to join.
• Ongoing Opioid-Related Litigation: Approximately 230 cases against the company in the Multidistrict Litigation (MDL No. 2804) and about 13 other opioid-related cases in U.S. state/federal courts and Canadian courts as of December 1, 2025. A jury trial commenced on September 18, 2025, for the Florida Health Sciences Center case.
• DOJ Opioid Civil Litigation: Civil complaint filed December 22, 2020, alleging unlawful dispensing and distribution of controlled substances; trial scheduled for November 2027.
• Opioid-Related Securities Class Actions: Dismissed by the U.S. District Court for the District of Delaware on April 8, 2024, and affirmed by the Third Circuit Court of Appeals on August 29, 2025.
• False Claims Act Litigation: Qui tam action filed August 23, 2019, with a third amended complaint filed January 9, 2025, by former pharmacists, alleging violations of the Controlled Substances Act and state pharmacy regulations.
• Asda Equal Value Claims: Claims by approximately 73,000 current and former Asda store employees in the UK alleging unequal pay, with a hearing on the third phase scheduled for November 23, 2026. Walmart has an indemnification obligation up to a contractually determined amount.
• Money Transfer Agent Services Matter: DOJ investigation (subpoenas issued through August 2020) into consumer fraud prevention and anti-money laundering compliance related to Walmart's money transfer services.
• Driver Platform Matters: Investigations by FTC and State Attorneys General regarding payment and operational practices, and civil litigation/arbitration claims concerning independent contractor classification of drivers.
• Mexico Antitrust Matter: COFECE issued a split decision on December 12, 2024, imposing a $93.4 million pesos (approximately $5 million USD) penalty and non-structural conduct measures on Walmex's subsidiary for alleged monopolistic practices. Walmex's subsidiary appealed on January 6, 2025.
• Foreign Direct Investment Matters (India Flipkart): Directorate of Enforcement issued a show cause notice in July 2021 and requests for information (most recent in April 2025) regarding alleged violations of FDI rules from 2009-2015, prior to Walmart's acquisition. Potential for monetary/non-monetary relief.
• India Antitrust Matter (Flipkart): Competition Commission of India ordered an investigation on January 13, 2020, and Flipkart subsidiaries received a report on September 13, 2024, alleging competition law violations. CCI's final order is pending.
• Environmental Matters: Finding of Violation from the U.S. Environmental Protection Agency (EPA) in October 2023 alleging Clean Air Act violations related to refrigeration leak detection, with potential penalties exceeding $1 million.

Related Party Transactions

• Transactions in South Africa between Builders (a division of Massmart, a Walmart subsidiary) and the Embassy of Iran, totaling approximately $85 in August 2025.
• Transactions between Makro (another Massmart division) and an individual purchasing on behalf of the Embassy of Iran, totaling approximately $74,000 from April 2019 through October 1, 2025, including $3,500 during the quarter ended October 31, 2025.
• The company does not plan to continue selling to the Embassy or this individual.

Stakeholder Impact

• Shareholders: Benefited from a 13% increase in annual dividend and $7.0 billion in share repurchases. Potential for increased value from strong e-commerce growth and higher-margin businesses. Exposed to risks from ongoing litigation and macroeconomic uncertainties.
• Employees: Impacted by associate wage investments (Sam's Club U.S.). PhonePe employees affected by modification of share-based payment arrangements. Potential for changes in workforce size and pay levels due to productivity initiatives.
• Customers: Benefited from "everyday low prices" strategy. Increased engagement with omnichannel offerings (store-fulfilled pickup and delivery).
• Suppliers: Impacted by supplier financing programs with financial institutions. Walmex's suppliers in Mexico affected by antitrust ruling regarding contributions.
• Creditors: Long-term debt increased by $2.0 billion. Credit ratings (Standard & Poor's A-1+/AA, Moody's P-1/Aa2, Fitch F1+/AA) are strong, but a downgrade could increase borrowing costs.
• Regulatory Authorities: Engaged in numerous legal and regulatory proceedings (SEC, DOJ, FTC, State Attorneys General, COFECE, CCI, EPA).

Next Steps

• Management intends to adopt ASU 2023-09 (Income Taxes) prospectively for the fiscal year ending January 31, 2026.
• Management is evaluating ASU 2024-03 (Expense Disaggregation Disclosures) for fiscal years beginning after December 15, 2026.
• Remaining federally recognized Native American tribes have until February 24, 2026, to join the opioid settlement.
• The hearing on the third phase of Asda Equal Value Claims is scheduled to begin on November 23, 2026.
• Trial for the DOJ Opioid Civil Litigation is scheduled for November 2027.
• Walmex's subsidiary will operate in compliance with COFECE's ruling on the Mexico Antitrust Matter until the appeal is resolved.
• Flipkart intends to vigorously defend against allegations in the India Foreign Direct Investment and Antitrust Matters.
• The company is cooperating with the EPA in its investigation regarding Clean Air Act violations.

Key Dates

Recommendation

While Walmart demonstrated strong revenue growth, significant net income increases, and robust cash flow, the slight decline in operating income due to specific charges and rising general liability claims warrants caution. The company's strategic investments in e-commerce and automation are positive long-term drivers, and the increased dividend and share repurchases are favorable for shareholders. However, the ongoing and extensive legal proceedings, particularly the opioid and antitrust matters, present material contingent liabilities and uncertainties. The macroeconomic environment also poses continued risks. Given the mix of strong performance in key areas and persistent operational and legal challenges, a "hold" recommendation is appropriate for a seasoned investor, suggesting continued monitoring of these factors.

Keywords

Retail, E-commerce, Grocery, Sam's Club, International Retail, Financial Performance, Q3 Earnings, 10-Q, SEC Filing, Dividends, Share Repurchase, Opioid Litigation, Antitrust, Supply Chain, Inflation, Corporate Governance, Walmart+, PhonePe, Flipkart, VIZIO