Walmart Inc. (NASDAQ: WMT) beat on both the top and bottom lines in Q2 and then raised its full-year guidance. The headline numbers are strong. But the real engine of the beat is a single, non-recurring factor: tariff refunds.
Total revenue rose 5.9% to $187.9 billion, about $1.1 billion above the consensus estimate of $186.8 billion. Adjusted EPS of $0.81 beat by roughly 9%, versus the $0.74 estimate and up 19.1% from $0.68 a year ago. GAAP EPS was $0.80, held back by a $0.12 net loss on equity investments, partially offset by a $0.11 tax benefit.
The gross profit rate expanded 96 basis points to 25.4%. Walmart attributes the bulk of that to tariff refunds received in the quarter, along with a favorable business mix from higher-margin advertising and marketplace sales. Those benefits were partially offset by price investments and higher fuel costs. Setting aside the tariff refunds, management said underlying operating income growth landed at the top end of its own guidance.
Operating income surged 28.8% to $9.4 billion, or up 17.4% on an adjusted constant-currency basis. That is operating income growing more than three times faster than revenue, a spread that is almost entirely a function of the tariff refunds flowing through cost of goods sold. Walmart U.S. operating income rose 20.6% to $8.1 billion, with the segment's gross profit rate up 158 bps. Sam's Club U.S. operating income jumped 44.3% to $678 million, also aided by tariff refunds and membership growth.
Global eCommerce grew 23%, with store-fulfilled pickup and delivery leading the way. Advertising revenue rose 38% globally, including 43% growth at Walmart Connect (ex-VIZIO). Membership fee revenue climbed 17% globally, with Walmart+ net adds hitting a Q2 record and Sam's Club membership income up 6% on strong Plus penetration.
Walmart U.S. comp sales rose 2.6%, but that includes a roughly 125 bps headwind from pharmacy deflation tied to the new maximum fair price regulation that took effect January 1. Excluding health and wellness, comps were +3.4%. Transactions grew 1.5% and average ticket rose 1.1%, with like-for-like grocery inflation at 1.3%. The company noted share gains across income tiers, led by upper-income households.
The guidance raise is the clearest signal management sees momentum continuing, but the structure of the raise matters. For FY27, net sales growth is now expected at +4.0% to +5.0% constant currency, up from the prior range of +3.5% to +4.5%. Adjusted operating income growth was raised to +7.0% to +8.5% from +6.0% to +8.0%. Adjusted EPS guidance moved to $2.80 to $2.87 from $2.75 to $2.85.
CFO John David Rainey explicitly flagged that Q3 guidance includes a headwind of over 100 bps from the timing shift of Flipkart's Big Billion Days between Q3 and Q4. For Q3, net sales growth is guided at +3.0% to +3.75% and adjusted operating income growth at +2.0% to +4.0%, both in constant currency. Rainey encouraged investors to consider Q2 and Q3 together, noting that tariff refunds received in Q2 will be reinvested into price and customer experience in the second half.
Capital expenditures were raised to approximately 4.0% of net sales from 3.5%, reflecting continued investment in omnichannel infrastructure. Free cash flow for the first half was $5.5 billion, down from $6.9 billion a year ago, as capex rose $2.8 billion to $14.2 billion. The company repurchased $3.0 billion in shares during the quarter, with $25.1 billion remaining on its $30 billion authorization.
The tariff refunds are a one-time benefit that inflated Q2 margins and operating income growth. The underlying question for the back half is whether Walmart can sustain the revenue momentum and eCommerce profitability gains once those refunds are fully reinvested into pricing. The raised capex plan suggests management is betting it can, but Q3's slower operating income guide implies the reinvestment will compress margins in the near term.