Walmart Connect Drives Margins as Sales Slow

Walmart is increasingly leaning on its fast-growing Walmart Connect advertising unit to bolster profits as U.S. same-store sales growth slows. Walmart Connect surged 44% in the quarter ended April 30, its fastest pace since it began reporting the metric in 2023, helping offset costs from maintaining low prices and rapid delivery. U.S. same-store sales growth slowed to 4.1% from 4.5% in prior quarters, and analysts expect growth to dip below 4% next quarter. Walmart Connect has high gross margins around 70% and accounts for about a third of operating income despite representing a small portion of Walmart’s $713 billion in annual sales, with the program strengthened by Walmart’s membership data. The advertising business benefits from the membership program and data-driven targeting, and analysts see significant upside for Walmart Connect, though a slowdown could weigh on Walmart’s stock as the company explores AI-driven advertising opportunities.