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Walmart Faces Higher Fuel Costs: Will Margins Stay Under Pressure?
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Key Takeaways
Walmart absorbed $175 million in fuel costs, cutting operating income growth by 250 basis points.
Higher fuel costs raised expenses and offset gross margin gains from mix and advertising.
Walmart kept its fiscal 2027 operating income growth outlook at 6%-8% despite fuel pressure.
Walmart Inc. (WMT - Free Report) entered fiscal 2027 with solid sales growth, but higher fuel costs created a meaningful drag on operating income in the first quarter.
The company absorbed approximately $175 million of higher-than-planned fuel costs across its global distribution and fulfillment operations. This pressure reduced operating income growth by about 250 basis points. Even with the added expense, adjusted operating income in constant currency increased 5.1% to $7.5 billion, while reported operating income rose 5%.
The margin impact was also visible in the broader cost structure. Walmart’s gross profit rate increased six basis points to 24.3%, helped by favorable merchandise category mix and business mix, including advertising. However, higher fuel costs in the supply chain partly offset those benefits. Adjusted operating expenses as a percentage of net sales rose 23 basis points to 21.1%.
Walmart also indicated that elevated fuel costs are affecting both the company and its suppliers through the cost of goods sold. If the current cost environment continues, WMT expects somewhat higher retail price inflation in the second quarter and the second half of the year.
Despite the first-quarter pressure, Walmart maintained its fiscal 2027 outlook for adjusted operating income growth of 6% to 8% in constant currency. It also expects second-quarter adjusted operating income growth of 7% to 10%. The key takeaway is that fuel costs remain a near-term margin headwind, while Walmart’s unchanged guidance reflects its expectation that profitability will improve after the first quarter.
How KR & COST Are Managing Margin Pressure
The Kroger Co. (KR - Free Report) saw transportation costs weigh on margins in the first quarter of 2026. KR’s gross margin declined 30 basis points year over year to 22.7%, primarily due to the mix impact of higher fuel sales, increased transportation costs, egg deflation and planned price investments. Excluding fuel, rent, depreciation, amortization and adjustment items, Kroger’s FIFO gross margin rate decreased 9 basis points, with higher transportation costs contributing 15 basis points of pressure.
Costco Wholesale Corporation (COST - Free Report) faced fuel-related margin pressure in the third quarter of fiscal 2026. COST’s reported gross margin rate declined 21 basis points year over year to 11.04%, reflecting sales-mix changes and a lower gas margin rate, among other factors. Higher gasoline prices also increased transportation costs. Excluding gas inflation, Costco’s gross margin rate improved one basis point, showing that fuel-price inflation had a meaningful effect on the reported margin comparison.
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Walmart Faces Higher Fuel Costs: Will Margins Stay Under Pressure?
Key Takeaways
Walmart Inc. (WMT - Free Report) entered fiscal 2027 with solid sales growth, but higher fuel costs created a meaningful drag on operating income in the first quarter.
The company absorbed approximately $175 million of higher-than-planned fuel costs across its global distribution and fulfillment operations. This pressure reduced operating income growth by about 250 basis points. Even with the added expense, adjusted operating income in constant currency increased 5.1% to $7.5 billion, while reported operating income rose 5%.
The margin impact was also visible in the broader cost structure. Walmart’s gross profit rate increased six basis points to 24.3%, helped by favorable merchandise category mix and business mix, including advertising. However, higher fuel costs in the supply chain partly offset those benefits. Adjusted operating expenses as a percentage of net sales rose 23 basis points to 21.1%.
Walmart also indicated that elevated fuel costs are affecting both the company and its suppliers through the cost of goods sold. If the current cost environment continues, WMT expects somewhat higher retail price inflation in the second quarter and the second half of the year.
Despite the first-quarter pressure, Walmart maintained its fiscal 2027 outlook for adjusted operating income growth of 6% to 8% in constant currency. It also expects second-quarter adjusted operating income growth of 7% to 10%. The key takeaway is that fuel costs remain a near-term margin headwind, while Walmart’s unchanged guidance reflects its expectation that profitability will improve after the first quarter.
How KR & COST Are Managing Margin Pressure
The Kroger Co. (KR - Free Report) saw transportation costs weigh on margins in the first quarter of 2026. KR’s gross margin declined 30 basis points year over year to 22.7%, primarily due to the mix impact of higher fuel sales, increased transportation costs, egg deflation and planned price investments. Excluding fuel, rent, depreciation, amortization and adjustment items, Kroger’s FIFO gross margin rate decreased 9 basis points, with higher transportation costs contributing 15 basis points of pressure.
Costco Wholesale Corporation (COST - Free Report) faced fuel-related margin pressure in the third quarter of fiscal 2026. COST’s reported gross margin rate declined 21 basis points year over year to 11.04%, reflecting sales-mix changes and a lower gas margin rate, among other factors. Higher gasoline prices also increased transportation costs. Excluding gas inflation, Costco’s gross margin rate improved one basis point, showing that fuel-price inflation had a meaningful effect on the reported margin comparison.
WMT Stock Price Performance, Valuation & Estimates
Shares of Walmart have risen 7.9% over the past year compared with the industry’s growth of 5.3%.
WMT Price Performance Versus Industry
Image Source: Zacks Investment Research
From a valuation standpoint, WMT trades at a forward price-to-earnings ratio of 36.22, higher than the industry’s average of 32.85.
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 13.1%, respectively.
Walmart currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.