Walmart Inc. WMT delivered a notable improvement in its general merchandise business during the first quarter of fiscal 2027, with stronger performance in discretionary categories beginning to contribute more meaningfully to the merchandise mix. The quarter marked an important development as improved general merchandise sales supported gross-margin expansion despite continued cost pressure from higher fuel expenses.
General merchandise comparable sales in Walmart U.S. increased at a mid-single-digit rate during the quarter, representing the highest level of share gains in five years. Growth was led by fashion and hardlines, while private-brand sales increased at a double-digit rate and gained 175 basis points of mix. Marketplace sales in hardlines, home and apparel also grew more than 40%, reflecting continued expansion across these categories.
The stronger merchandise mix helped lift profitability. Walmart U.S. gross profit increased 5.6% to $32.5 billion, while the gross profit rate expanded 29 basis points to 27.8%. The improvement reflected a favorable merchandise category mix, continued inventory management benefits and a stronger business mix driven by digital advertising. These gains were partially offset by higher fuel costs affecting distribution and fulfillment.
The quarter also marked the first time in 18 quarters that merchandise mix contributed positively to Walmart U.S. gross-margin expansion. General merchandise sales grew at a mid-single-digit rate, supported by stronger performance across key categories and approximately 7,200 rollbacks across the assortment, more than 20% higher than a year ago.
Taken together, the first-quarter results suggest that Walmart's general merchandise business is once again becoming a meaningful contributor to merchandise mix and gross-margin performance. Whether this momentum continues will likely depend on the company's ability to sustain growth across higher-value discretionary categories while navigating an elevated cost environment.
How Do Target and Costco Compare?
Target Corporation TGT delivered broad-based merchandise momentum in the first quarter of fiscal 2026, with net sales increasing 6.7% and comparable sales rising 5.6%. TGT reported higher sales across all six core merchandising categories, with strength spanning apparel, beauty, food and beverage, hardlines, home furnishings and household essentials. Improved merchandise performance also supported profitability, as Target's gross margin rate expanded 80 basis points to 29%.
Costco Wholesale Corporation COST continued to report strong sales momentum in the third quarter of fiscal 2026. The company posted 11.6% net sales growth and a 9.8% comparable sales increase, supported by gains in both traffic and ticket size. COST’s gross margin declined 21 basis points to 11.04%. However, excluding the impact of gasoline prices, Costco’s gross margin improved by 1 basis point, indicating stable underlying merchandise profitability despite external pricing effects.
WMT Stock Price Performance, Valuation & Estimates
Shares of Walmart have risen 19.4% over the past year compared with the industry’s growth of 16.8%.
WMT Price Performance Versus Industry
Image Source: Zacks Investment Research
From a valuation standpoint, WMT trades at a forward price-to-earnings ratio of 37.24, higher than the industry’s average of 33.97.
WMT Valuation Compared to Industry
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for WMT’s current and next fiscal year earnings per share implies year-over-year growth of 9.5% and 13.3%, respectively.
Walmart currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Walmart Inc. (WMT): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).