Walmart Inc "What's the Maximum Fair Price Here?" (Buy) Lasser

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Walmart Inc "What's the Maximum Fair Price Here?" (Buy) Lasser

its marketplace and grows its audience with higher income customer segments.

With all the noise in the quarter, the margin expansion driven by the 2nd P&L flew

under-the-radar. WMT US expanded gross margins by ~30 bps in 1Q, driven in

large part by the incremental growth of its high margin revenue streams. Plus, we

estimate that the ~$175mm in incremental fuel-related costs suppressed WMT

US's gross margin by 10 - 15 bps in the quarter. This would leave WMT US gross

margin expansion at 40 - 45 bps for the quarter, its highest level of expansion since

CY 4Q 2024.

WMT provided a balanced perspective on the consumer in the quarter. While

higher income consumers continue to spend with confidence, the retailer

acknowledged lower income consumers are in distress with higher gas prices.

However, we don't believe this will serve as a material headwind to the business.

Rather, the company will take the opportunity to maintain low prices and win

market share. This was clear from 1Q's results, as WMT US comp was driven

primarily by traffic growth of 3.0%, a deviation from its CY 2025 comp which was

largely driven by ticket. We see this strength continuing into 2Q as we believe QTD

comp has remained steady in the low 4.0% range despite incremental pressure

from higher gas prices.

A volatile macro environment continues to obfuscate underlying improvements

in WMT's fundamentals

Adjusting for headwinds in the quarter, WMT drove a comp >5%, positive in-store

comps and would have driven ~40-45 bps of gross margin expansion in WMT US.

Following several quarters of strong growth, Health & Wellness slowed due to a

100 bps headwind from the Maximum Fair Pricing legislation. WMT expects this