Downloaded by Neil.Wang@troweprice.com Not for redistribution without written consent of Morgan Stanley October 12, 2025 10:44 PM GMT Hardline/Broadline/Food Retail | North America What is Broadlines/Hardlines' China sourcing exposure? While most companies in our coverage have moved to diversify their supply chain relationships away from China to some degree, substantial exposure remains. We have updated our estimates to reflect our best assessment of the percentage of goods sourced from China on a go-forwa ...

Investment Rating - Industry View: In-Line [5] Core Insights - Dollar Stores are experiencing significant momentum, with an expected acceleration in share gains throughout 2025, potentially driving an incremental comp growth of approximately 200-250 basis points [3][18][22] - The combined share of Dollar Stores (DG, DLTR, FIVE, OLLI) nearly doubled in Q1'25, reaching around 3% of incremental retail sales, compared to 1.6% in Q4'24 [2][13] - Major retailers like AMZN, WMT, and COST continue to dominate the market, capturing approximately 43% of every incremental dollar of retail sales, making it challenging for other retailers to gain market share [4][7] Summary by Sections Dollar Store Performance - Dollar Stores benefited from a heightened degree of share donation in Q1'25, with an estimated $3 billion of donated share, significantly higher than the previous quarter [15][18] - The share gains for Dollar Stores are attributed to bankruptcies and store closures among competitors, as well as tariff impacts on certain retailers [3][18] Major Retailers' Market Share - In Q1'25, AMZN's share of incremental retail sales decreased to 20.7%, while WMT and COST gained shares, with WMT at 11.1% and COST at 11.3% [4][9] - COST's share of incremental retail sales has shown a steady increase since 2022, reaching 11.3% in Q1'25, indicating strong momentum [9][10] Future Projections - The analysis suggests that Dollar Stores will continue to see outsized incremental sales through the end of 2025, driven by ongoing share donations from competitors [18][22] - The expected decline in Temu's sales is projected to significantly impact the market dynamics, with a forecasted 37% year-over-year decline in Q2'25 [18][22]

Summary of Walmart Inc. Conference Call Company Overview - **Company**: Walmart Inc. (WMT) - **Industry**: Hardline/Broadline/Food Retail - **Market Cap**: $780.843 billion - **Current Stock Price**: $96.83 - **Price Target**: $115.00 - **Fiscal Year Ending**: January 2026 Key Points and Arguments Financial Performance - **Comps and Earnings**: Walmart's U.S. comps increased by +4.6%, outperforming consensus expectations of +3.7% [1][9] - **Adjusted Operating Income Growth**: Reported growth of +3.0% year-over-year, but underlying growth, excluding discrete items, was +9.0% [2][17] - **Revenue Guidance**: Fiscal year 2026 guidance remains unchanged at +3% to +4% net sales growth and +3.5% to +5.5% adjusted operating income growth, reflecting caution due to macroeconomic uncertainties [1][17] E-commerce and Alternative Revenue - **E-commerce Growth**: Walmart U.S. eCommerce sales grew by +21% year-over-year in the first fiscal quarter of 2026, up from +20% in the previous quarter [9] - **Incremental Margins**: E-commerce's incremental margins were estimated at 13%, marking the first quarter of standalone profitability for this segment [13] - **Advertising Revenue**: Continued acceleration in advertising revenue growth, contributing to overall profitability [1] Market Share and Competitive Position - **Market Share Gains**: Walmart's share of incremental retail sales was 8.5% in the first fiscal quarter of 2026, slightly down from 10.8% in the previous quarter but still strong [9][10] - **Competitive Dynamics**: Walmart's performance contrasts with Amazon's deceleration in North America, highlighting Walmart's competitive strength in eCommerce [9] Inventory and Accounting Dynamics - **Retail Inventory Method**: The accounting method will create uneven quarterly earnings due to higher-cost inventory being marked up, which may lead to a one-time gain in the second fiscal quarter of 2026 [15] - **Demand Trends**: Demand improved sequentially from February through April, indicating a recovery in consumer spending [15] Risk and Guidance - **Conservative Guidance**: The unchanged guidance is viewed as conservative, given the resilient consumer behavior and intrinsic profit drivers that could lead to upside surprises [17] - **Potential Risks**: Risks include macroeconomic uncertainties and trade policy impacts that could affect future performance [17] Additional Important Insights - **Earnings Estimates**: For fiscal year 2026, EPS estimates are $2.62, with a projected P/E ratio of 37.0 [7][33] - **Long-term Outlook**: The company is expected to balance long-term investments with near-term returns, aiming for sales growth of +LSD% to +MSD% and EBIT growth of +MSD to +HSD% over the next few years [25][26] - **Valuation Metrics**: The price target reflects a blended P/E multiple of ~40.2x on estimated EPS of $2.86 for fiscal year 2027, indicating a premium valuation due to Walmart's transformation into an eCommerce disruptor [18][24] This summary encapsulates the key financial metrics, strategic insights, and market positioning of Walmart Inc. as discussed in the conference call, providing a comprehensive overview for potential investors.