Walmart’s E-Commerce Surge: Can Digital Growth Offset Rising Cost Pressures in Q3?

Walmart (WMT) continues to demonstrate the power of its digital transformation, with e-commerce emerging as the clear standout in its fiscal second quarter results. As the retail giant prepares to report third-quarter earnings on Thursday, October 20, investors will be watching closely to see whether this momentum can persist amid mounting cost pressures and an increasingly cautious consumer environment.

Q2 Performance: E-Commerce Takes Center Stage

Walmart delivered robust top-line results in its fiscal second quarter ended July 31, 2025, with global revenue reaching $177.4 billion—up from $169.3 billion the prior year. The headline figure represented 5.6% growth in constant currency terms, exceeding management’s expectations across all business segments.

What made these results particularly notable was the divergence between online and total sales growth. Global e-commerce sales surged 25% year over year—more than five times the 4.8% overall sales growth rate. Walmart’s digital growth is now markedly faster, accelerating beyond the consistent low-20% expansion range seen over the last year.

The strength was broad-based across countries and formats. In the United States, both Walmart and Sam’s Club e-commerce operations posted 26% year-over-year growth. International e-commerce grew 22%, with particularly strong performance in China, where more than half of total sales now originate online. Sam’s Club CEO Christopher Nicholas revealed that two-thirds of the warehouse club’s sales growth came from e-commerce channels.

CEO Doug McMillon attributed the strong overall performance to higher transaction volumes and increased units sold, a combination that suggests Walmart is successfully capturing market share across all income levels. Notably, upper-income households contributed the largest gains, indicating the retailer’s value proposition is resonating beyond its traditional customer base.

The Profitability Inflection Point

Perhaps more significant than the growth rate itself is the transformation in e-commerce economics. In May 2025, Walmart reached a major milestone: its first profitable quarter for e-commerce operations both in the U.S. and globally. CFO John David Rainey confirmed that “Walmart U.S. ecommerce profitability continued to increase in Q2 as we make progress on improving net delivery costs and see strong momentum in advertising.”

The path to profitability has been driven by several factors. Delivery from store—leveraging Walmart’s extensive physical footprint as a fulfillment network—grew nearly 50% in the quarter, helping to reduce last-mile delivery costs. Meanwhile, the company’s advertising business exploded 46% year over year globally, creating a high-margin revenue stream that helps offset the inherent costs of e-commerce operations.

Excluding claims, fully half of Walmart’s marginal profit was derived from three key growth areas, according to Rainey: advertising, membership income, and its digital marketplace. This diversification of profit sources represents a fundamental shift in the company’s business model, moving beyond traditional retail margins to capture value from the platform itself.

However, it’s worth noting that most e-commerce profitability currently comes from U.S. operations. Walmart’s international e-commerce segment continues to operate at a loss, though investments in infrastructure—including more than 300 micro-fulfillment centers in India capable of delivering items in under 15 minutes—suggest management is playing a long game in emerging markets.

The Cost Pressure Reality Check

Despite the revenue strength, Walmart’s Q2 results revealed growing margin pressure. Operating income declined 8.2% year over year, falling to $7.3 billion from $7.9 billion. More concerning for investors, adjusted earnings per share of $0.68 missed analyst estimates—the first such miss since May 2022.

Management attributed the earnings shortfall to rising costs tied to tariffs and selective price increases that weren’t sufficient to offset margin compression. This dynamic illustrates the tightrope Walmart must walk: maintaining its value positioning to drive traffic while absorbing cost inflation that threatens profitability.

The company did raise its full-year outlook, now projecting net sales growth between 3.75% and 4.75% with EPS guidance of $2.52 to $2.62. This vote of confidence suggests management believes it can navigate the cost pressures while sustaining momentum.

6 Things to Watch in Walmart’s Q3 Earnings

As Walmart prepares to report fiscal third-quarter results, analysts are forecasting EPS of $0.60 on revenue of $175.14 billion. Several key factors will determine how investors react:

1. E-Commerce Momentum: Can Walmart maintain the 25%+ growth trajectory, or was Q2 an anomaly? Sequential growth acceleration from Q1 to Q2 was encouraging, but sustainability is crucial. Investors should watch for commentary on order volumes, delivery speeds, and customer acquisition trends across income cohorts.
2. Margin Management: The critical question is whether Walmart can continue absorbing tariff-driven cost inflation without sacrificing either market share or profitability. Look for updates on net delivery costs, advertising margin contribution, and the company’s pricing strategy. Any indication that price increases are dampening traffic would be a red flag.
3. Market Share Dynamics: Walmart has been gaining share across key categories and income levels. Traders should focus on comparable store sales trends, transaction counts, and units per basket to assess whether the value proposition remains compelling as consumers face their own budget pressures.
4. International Profitability Path: While U.S. e-commerce has turned profitable, international operations remain in investment mode. Updates on the trajectory toward profitability in key markets like China, Mexico, and India will be important for long-term growth prospects.
5. General Merchandise Recovery: Q2 saw a return to low single-digit positive comps in general merchandise after prolonged weakness. Whether this trend continues—particularly in discretionary categories like fashion and home goods—will signal broader consumer health beyond essential grocery and health items.
6. Advertising and Marketplace Growth: These high-margin businesses are becoming increasingly important to overall profitability. Expect scrutiny on advertising growth rates and third-party marketplace expansion, as these revenue streams help offset the structural margin pressure in retail.

The Broader Retail Implications

Walmart’s ability to maintain traffic growth while managing cost inflation makes it a bellwether for the entire retail sector’s resilience. The company’s success in attracting higher-income shoppers suggests consumers across the spectrum are trading down to value options—a trend that could persist even as inflation moderates.

The e-commerce profitability milestone also validates the multi-billion-dollar investments Walmart has made in digital infrastructure over the past decade. By leveraging its store base for fulfillment and building adjacent businesses in advertising and marketplace services, Walmart has created a sustainable model that doesn’t rely on razor-thin retail margins alone.

As Thursday’s earnings release approaches, the tension between robust revenue growth and margin pressure will be front and center. Walmart has proven it can drive top-line results through e-commerce innovation and market share gains. The question now is whether it can translate that growth into consistent earnings momentum in a relatively high-cost, high-rate environment.

WMT Shares: Walmart’s Technical Outlook

For traders and investors alike, Walmart’s earnings will shape expectations not just for the company, but for the broader retail landscape heading into the critical holiday quarter. The results come at a key moment for the stock. After rallying more than 13% year-to-date, Walmart shares have recently lost momentum and now trade at a decisive level relative to the Ichimoku cloud.

The stock is currently testing the cloud boundary, creating a binary setup where the earnings catalyst could determine the next major move :

• A strong report that addresses margin concerns while confirming sustained e-commerce growth could propel shares decisively above the cloud, signaling a resumption of the uptrend and potentially targeting new highs.
• Conversely, disappointing guidance or further evidence of margin erosion could send the stock tumbling below cloud support, potentially unwinding a significant portion of the year’s gains and establishing a more defensive posture heading into year-end.

Sources: Reuters, CNBC, Walmart, Digital Commerce 360