Walmart Credit Update: Tariff Refunds Boost Earnings as Bond Yields Climb to 5.05%

• Continued deepening of Walmart's earnings quality: Revenue rose 5.9% YoY to US$187.9bn in 2Q2027, with membership income and advertising growing well ahead of the top line.
• Tariff refunds supercharge reported profit, but core earnings hold up too: Operating income jumped 28.8% YoY to US$9.4bn on US$2.9bn of tariff refunds contributing around 750bps to that growth - yet stripping out the refund, underlying growth still landed at the top end of the 7–10% guidance range.
• Leverage stays conservative and debt servicing capacity improves: Lease-adjusted debt/EBITDA of 1.56x, with interest coverage rising to 20.1x from 15.5x a year ago, though the latter flatters slightly on a one-off tax-related interest benefit.
• Bond yields rose alongside the credit story: Walmart's AA/Aa2/AA bonds yield up to 5.05%.

Revenue Growth Broadens

At initiation, we flagged Walmart's growing stream of high-margin membership and advertising income as a key support for the stability of its cash flows, and the second quarter (2Q2027), ended 31 July 2026, delivered continued momentum. Total revenue and consolidated net sales both rose 5.9% YoY, to US$187.9 billion and US$186.1 billion respectively. Growth was seen across all segments, with eCommerce rising 23% globally, led by store-fulfilled pickup and delivery and marketplace. More importantly, membership fee revenue grew 17% globally, with Walmart+ recording its highest number of new subscribers for any second quarter. The global advertising business also climbed 38% YoY - reinforcing our initiation view that these recurring, high-margin streams are steadily deepening Walmart's earnings quality.

Moving into 3Q2027, management guided for net sales to grow between 3.0% and 3.75% YoY in constant currency. While the guided range looks softer than 2Q's pace, it absorbs a headwind of more than 100 basis points from the timing shift of Flipkart's Big Billion Days event from 3Q into 4Q this year. For the full year, management also raised its FY2027 net sales guidance to growth of 4.0% to 5.0% in constant currency, from 3.5% to 4.5% previously. This suggests underlying growth remains robust, and the softer 3Q guidance is predominantly timing related.

Operating Income Boosted by Tariff Refunds

Consolidated operating income jumped 28.8% YoY to US$9.4 billion, lifting operating margin to 4.99% from 4.11% a year earlier. This growth included a sizeable one-off boost from tariff refunds. Walmart received substantially all of the US$2.9 billion it was eligible for during the quarter, which contributed an estimated 750 basis points to adjusted operating income growth. Management noted that excluding the net tariff refund impact, underlying operating income growth still landed at the top end of its prior 7% to 10% guidance range, signalling that the core earnings engine remains healthy.

By segment, Walmart US remained the key earnings contributor, as operating income grew 20.6% YoY to US$8.1 billion (as shown in Figure 1), driven by improved e-commerce sales and higher Walmart+ membership fee revenue. Walmart International grew 16.6% YoY to US$1.4 billion, led primarily by sales strength in China and India, with membership fee revenue up 28% YoY and 206 new stores opened over the past twelve months. Sam's Club US saw operating income soar 44.3% YoY to US$678 million, reflecting both tariff refund benefits and continued strong membership growth. Notably, Gen Z and millennial members drove more than half of new sign-ups this quarter.

Adjusted operating income is expected to grow 2.0% to 4.0% YoY in constant currency in 3Q2027. The soft-looking range reflects the deliberate reinvestment of remaining tariff refunds into customer experience and price investments in the second half. Management has explicitly encouraged investors to assess 2Q and 3Q performance together to gauge underlying growth. For the full year, adjusted operating income guidance was raised to growth of 7.0% to 8.5% in constant currency, from 6.0% to 8.0% previously, even as it absorbs just over US$2 billion of incremental fuel cost headwinds expected this year. Ultimately, the higher FY guidance suggests underlying profit growth is expected to remain comfortably ahead of sales growth despite reinvestment headwinds.

Figure 1: Segment Operating Income (2Q2026 vs 2Q2027)

Source: Company financials

Capital Spending and Free Cash Flow

Walmart continues to channel capital towards supply chain automation, technology, and store and club remodels. Capital expenditure for 2Q2027 grew 16.7% YoY to US$7.5 billion. With cash from operating activities rising 15.7% YoY to US$15.0 billion, free cash flow grew 14.7% YoY to US$7.5 billion - the group's strongest quarterly free cash flow generation across the past ten quarters, and a healthy rebound from the seasonal 1Q outflow we highlighted at initiation. As shown in Figure 2, this seasonal rhythm is a consistent feature of Walmart's cash flow profile where first quarters are routinely weak or negative as inventory builds ahead of the spring and summer selling season, before cash generation recovers strongly through the remainder of the year.

On a trailing-twelve-month basis, free cash flow came in at approximately US$13.5 billion, broadly flat year-on-year, as the step-up in growth capex absorbed the strong operating cash flow gains. We view this as an acceptable trade-off. The incremental spending is discretionary and directed at automation and e-commerce fulfilment capacity, which management expects to deliver structurally higher margins over time.

As with recent quarters, Walmart did not provide exact dollar guidance for capital expenditure but raised its guidance to approximately 4.0% of annual net sales, from approximately 3.5% previously - implying full-year capex of roughly US$29–30 billion at the midpoint of its raised sales outlook. This signals management's confidence in the returns from its automation and omnichannel investments, though it also means free cash flow growth will likely lag earnings growth in the near term.

Figure 2: Quarterly Free Cash Flow (1Q2025 – 2Q2027)

Source: Company financials

Balance Sheet Strength & Liquidity

As of 31 July 2026, the group held US$11.5 billion in cash against total debt (including finance and operating lease obligations) of US$73.8 billion. Total assets grew 8.5% YoY, from US$270.8 billion to US$293.9 billion, driven largely by continued investment in property and equipment under its omnichannel strategy. As a result, the total debt to total asset ratio edged up from 24.0% to 25.1%, as shown in Table 1. The US$8.7 billion YoY increase in total debt was driven predominantly by a US$6.6 billion rise in short-term borrowings, which funded the group's inventory build (global inventory up 6.7% YoY to US$61.6 billion), elevated capital spending, and shareholder returns (Walmart repurchased US$5.1 billion of shares year-to-date under its new US$30 billion authorization approved in February 2026, with US$25.1 billion remaining).

Total shareholders' equity rose 8.2% YoY from US$96.6 billion to US$104.5 billion on the back of retained earnings growth. With net debt of US$62.2 billion, net debt to total equity came in at 59.5%, up modestly from 57.6% a year ago. We are not concerned by the slight YoY uptick as the incremental borrowings are funding inventory and growth capex rather than covering any operational shortfall.

Table 1: Balance Sheet Strength

	2Q2027	2Q2026
Total Debt [1] (USD millions)	73,755	65,014
Total Assets [2] (USD millions)	293,914	270,837
Total Debt / Total Assets [1/2] (%)	25.09	24.00
Cash [3] (USD millions)	11,529	9,431
Net Debt [4, 1-3=4] (USD millions)	62,226	55,583
Total Equity [5] (USD millions)	104,506	96,550
Net Debt / Total Equity [4/5] (%)	59.54	57.57
Data as of 20 August 2026 Source: Company financials

On a trailing-twelve-month basis, Walmart's lease-adjusted total debt to EBITDA stood at approximately 1.56x (see Table 2), up marginally from 1.53x a year ago, though improved sequentially from 1.65x as tariff refund boosted EBITDA. The interest coverage ratio strengthened to approximately 20.12x, up from 15.50x over the same period a year ago. We would note that part of this improvement reflects a one-off interest benefit related to a certain tax matter, which lowered reported interest expense for the quarter. Nevertheless, Walmart’s earnings base remains relatively large and near-term debt servicing risk remains low.

Table 2: Leverage and Debt Servicing Capacity

	2Q2027	2Q2026	1Q2027
Total Debt [1] (USD millions)	73,755	65,014	74,179
EBITDA [2] (USD millions)	47,374	42,479	44,837
Total Debt / EBITDA [1/2] (x)	1.56	1.53	1.65
Interest Expense [3] (USD millions)	2,355	2,741	2,861
Interest Coverage Ratio [2/3] (x)	20.12	15.50	15.67
Data as of 20 August 2026 Source: Company financials

Bond Recommendation

Against the US Treasury curve, Walmart’s bonds continue to trade at some of the tightest spreads available in the retail sector – a reflection of its AA/Aa2/AA credit rating. The WMT 4.150% 30Apr2031 Corp (USD) offers a yield-to-worst of 4.65% at an ask price of 97.93, a pickup of approximately 29bps. Further out, the WMT 4.900% 28Apr2035 Corp (USD) yields 5.05% at an ask price of 98.95, giving a pickup of roughly 42bps. These tight Treasury spreads reflect the quality premium already embedded in Walmart’s ratings.

As shown in Table 3 below, when compared to peers of similar tenor, Walmart’s (AA / Aa2 / AA) bonds offer yield 5bps – 22bps less than Target (A / A2 / -), which sits three notches below, and 28bps - 35bps less against Amazon (AA / A1 / AA-), one to two notches below. Against Kroger (BBB / Baa1 / -), five to six notches below, the gap widens modestly further to 33bps - 43bps.

Table 3: Short to Medium Tenor Bond Comparisons

Issuer	Issue	Ask Price (USD)	Yield to Worst (%)	Years to Maturity	Credit Ratings (S&P / Moody’s / Fitch)
Walmart Inc.	WMT 4.150% 30Apr2031 Corp (USD)	97.93	4.65	4.7	AA / Aa2 / AA
Walmart Inc.	WMT 4.150% 09Sep2032 Corp (USD)	97.08	4.71	6.0	AA / Aa2 / AA
Walmart Inc.	WMT 4.450% 30Apr2033 Corp (USD)	97.70	4.86	6.7	AA / Aa2 / AA
Walmart Inc.	WMT 4.900% 28Apr2035 Corp (USD)	98.95	5.05	8.7	AA / Aa2 / AA
Target Corp	TGT 7.000% 15Jul2031 Corp (USD)	109.14	4.87	4.9	A / A2 / -
Target Corp	TGT 4.500% 15Sep2032 Corp (USD)	98.49	4.79	6.1	A / A2 / -
Target Corp	TGT 4.400% 15Jan2033 Corp (USD)	97.25	4.91	6.4	A / A2 / -
Target Corp	TGT 5.000% 15Apr2035 Corp (USD)	98.27	5.25	8.6	A / A2 / -
Amazon.com Inc	AMZN 4.250% 13Mar2031 Corp (USD)	97.09	4.97	4.5	AA / A1 / AA-
Amazon.com Inc	AMZN 4.700% 01Dec2032 Corp (USD)	98.47	4.99	6.3	AA / A1 / AA-
Amazon.com Inc	AMZN 4.650% 20Nov2035 Corp (USD)	94.57	5.40	9.2	AA / A1 / AA-
Kroger Co	KR 7.500% 01Apr2031 Corp (USD)	110.19	4.98	4.6	BBB / Baa1 / -
Kroger Co	KR 5.000% 15Sep2034 Corp (USD)	96.94	5.48	8.1	BBB / Baa1 / -
Source: Bloomberg and Bondsupermar Data as of 31 August 2026

For investors comfortable with duration risk, the WMT 4.500% 15Apr2053 at an ask price of 83.21 offers a yield-to-worst of 5.74%, a pickup of around 55bps against comparable US Treasuries. This pickup is thin for such a long tenor and not too different from the spread on Walmart's shorter-tenor bonds, so we view it as fairly priced. Against comparable peers, the TGT 4.800% 15Jan2053 offers a yield-to-worst of 5.88% (-14bps), the AMZN 3.950% 13Apr2052 yields 6.21% (-47bps), and KR 5.500% 15Sep2054 yields 6.24% (-50bps) – all trade wider than Walmart, consistent with their lower credit ratings. This issue is available on Bondsupermart Live and can be traded with a minimum order size of US$2,000 and increments of US$1,000. Investors should note that with a modified duration of approximately 15 years, the price can fluctuate significantly and is best suited for investors looking to trade instead of holding to maturity.

As for those who are seeking the same AA / Aa2 / AA credit quality with less rate sensitivity, the WMT 4.450% 30Apr2033 (6.7 years, yield-to-worst 4.86%) offers a more balanced entry point. Do note that we also view this issue as fairly priced, given the limited spread over Treasuries.

Overall, we maintain our view that Walmart possesses one of the strongest credit profiles in the consumer space, but its bonds remain fairly priced.

Table 4: Long Tenor Bond Comparison

Issuer	Issue	Ask Price (USD)	Yield to Worst (%)	Years to Maturity	Credit Ratings (S&P / Moody’s / Fitch)
Walmart Inc.	WMT 4.500% 15Apr2053 Corp (USD)	83.21	5.74	26.6	AA / Aa2 / AA
Target Corp	TGT 4.800% 15Jan2053 Corp (USD)	85.66	5.88	26.4	A / A2 / -
Amazon.com Inc	AMZN 3.950% 13Apr2052 Corp (USD)	71.16	6.21	25.6	AA / A1 / AA-
Kroger Co	KR 5.500% 15Sep2054 Corp (USD)	90.20	6.24	28.1	BBB / Baa1 / -
Source: Bloomberg and Bondsupermart Data as of 31 August 2026

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in WMT 4.500% 15Apr2053 Corp (USD). The analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.