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Is Walmart Connect Becoming a Bigger Margin Driver for WMT?
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Key Takeaways
Walmart Connect grew 44% in Q1, outpacing 36% U.S. advertising revenue growth.
Sellers lifted ad spending by more than 50% after sales gains, reinforcing Walmart's ad opportunity.
WMT's U.S. gross margin rose 29 bps, helped mainly by digital advertising and better business mix.
Walmart Inc. (WMT - Free Report) is steadily reshaping its profit profile by scaling higher-margin digital businesses alongside its core retail operations. Within that shift, Walmart Connect is emerging as an increasingly important part of the company’s margin story.
In the first quarter of fiscal 2027, Walmart U.S. advertising revenues increased 36%, while Walmart Connect, excluding VIZIO, grew 44%. This growth came alongside 26% U.S. e-commerce sales growth and nearly 50% Marketplace sales growth, giving brands and sellers a broader, more engaged customer base.
Marketplace growth is also reinforcing the advertising opportunity. Sellers increased their advertising spending by more than 50% after seeing corresponding sales gains. Walmart also enhanced its ad capabilities via AI-powered campaign optimization tools and expanded reach through VIZIO’s connected TV platform.
The margin impact is becoming more visible. Walmart U.S. gross margin expanded 29 basis points, helped by a favorable business mix led primarily by digital advertising, though higher fuel costs in distribution and fulfillment partly offset the gains. Adjusted operating income for Walmart U.S. rose 5.7%, reflecting improved e-commerce economics, higher Walmart+ membership fee revenues and other income benefits.
Walmart Connect may not yet be proven as WMT’s biggest margin driver, but it is clearly becoming a more meaningful one. Its rapid growth, seller engagement and role in improving business mix suggest advertising is strengthening Walmart’s omnichannel economics and supporting a more profitable growth model.
How TGT and KR Are Using Retail Media to Lift Margins
Target Corporation (TGT - Free Report) is also using retail media to support profitability beyond merchandise sales. In first-quarter 2026, the company reported a 24.6% increase in non-merchandise revenues, driven by growth in Roundel advertising, Target Circle 360 membership fees and Target Plus marketplace revenues. These higher-margin streams helped lift TGT’s gross margin rate to 29% from 28.2% a year ago, along with lower markdowns and supply-chain efficiencies. For Target, Roundel is becoming a more visible earnings lever within its broader digital ecosystem.
The Kroger Co.KR is pursuing a similar path through higher-margin alternative profit businesses. In first-quarter 2026, the company’s Kroger Precision Marketing profit grew more than 20%, supported by strong on-site customer traffic and higher advertiser commitments. KR also delivered 19% adjusted e-commerce sales growth, while e-commerce, including media, reached profitability for the first time. By leveraging first-party customer data and digital engagement, Kroger is making retail media a more meaningful contributor to margin expansion beyond grocery sales.
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Is Walmart Connect Becoming a Bigger Margin Driver for WMT?
Key Takeaways
Walmart Inc. (WMT - Free Report) is steadily reshaping its profit profile by scaling higher-margin digital businesses alongside its core retail operations. Within that shift, Walmart Connect is emerging as an increasingly important part of the company’s margin story.
In the first quarter of fiscal 2027, Walmart U.S. advertising revenues increased 36%, while Walmart Connect, excluding VIZIO, grew 44%. This growth came alongside 26% U.S. e-commerce sales growth and nearly 50% Marketplace sales growth, giving brands and sellers a broader, more engaged customer base.
Marketplace growth is also reinforcing the advertising opportunity. Sellers increased their advertising spending by more than 50% after seeing corresponding sales gains. Walmart also enhanced its ad capabilities via AI-powered campaign optimization tools and expanded reach through VIZIO’s connected TV platform.
The margin impact is becoming more visible. Walmart U.S. gross margin expanded 29 basis points, helped by a favorable business mix led primarily by digital advertising, though higher fuel costs in distribution and fulfillment partly offset the gains. Adjusted operating income for Walmart U.S. rose 5.7%, reflecting improved e-commerce economics, higher Walmart+ membership fee revenues and other income benefits.
Walmart Connect may not yet be proven as WMT’s biggest margin driver, but it is clearly becoming a more meaningful one. Its rapid growth, seller engagement and role in improving business mix suggest advertising is strengthening Walmart’s omnichannel economics and supporting a more profitable growth model.
How TGT and KR Are Using Retail Media to Lift Margins
Target Corporation (TGT - Free Report) is also using retail media to support profitability beyond merchandise sales. In first-quarter 2026, the company reported a 24.6% increase in non-merchandise revenues, driven by growth in Roundel advertising, Target Circle 360 membership fees and Target Plus marketplace revenues. These higher-margin streams helped lift TGT’s gross margin rate to 29% from 28.2% a year ago, along with lower markdowns and supply-chain efficiencies. For Target, Roundel is becoming a more visible earnings lever within its broader digital ecosystem.
The Kroger Co. KR is pursuing a similar path through higher-margin alternative profit businesses. In first-quarter 2026, the company’s Kroger Precision Marketing profit grew more than 20%, supported by strong on-site customer traffic and higher advertiser commitments. KR also delivered 19% adjusted e-commerce sales growth, while e-commerce, including media, reached profitability for the first time. By leveraging first-party customer data and digital engagement, Kroger is making retail media a more meaningful contributor to margin expansion beyond grocery sales.
WMT Stock Price Performance, Valuation & Estimates
Shares of Walmart have risen 16% over the past year compared with the industry’s growth of 14.9%.
WMT Price Performance Versus Industry
Image Source: Zacks Investment Research
From a valuation standpoint, WMT trades at a forward price-to-earnings ratio of 37.17, higher than the industry’s average of 34.18.
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 9.4% 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.