Furner’s First Letter Tells Shareholders Where the Margin Comes From. Suppliers Should Be Taking Notes.

Walmart released its 2026 Annual Report and Proxy Statement on April 23. The reported headlines are strong: total revenues of $713.2 billion, constant-currency revenue growth of 5.1%, adjusted profit growth of 5.4%, global eCommerce of $150.4 billion (up 24%), advertising of nearly $6.4 billion (up 46%), membership fee revenue above $4.3 billion (up 15.5%), $15.6 billion returned to shareholders, and a fresh $30 billion buyback authorization approved in February. Those numbers will carry most of this week’s retail coverage.

They are not the story.

The story is what happens when you read John Furner’s first letter as CEO alongside Greg Penner’s chairman’s letter in the proxy, alongside the 10-K’s Management Discussion and Analysis, alongside the Risk Factors, alongside the Capital Allocation disclosures, alongside the executive officer table. The documents were prepared separately and serve different regulatory purposes. Read together, they describe one thing: a disciplined, disclosed transition in how Walmart intends to generate operating income, and a merchant organization that has been rebuilt around that transition. The transition is not coming. It is happening. The FY26 filings are the company telling shareholders it is happening on schedule.

Most supplier planning cycles are not yet built to read filings that way. They should be.

The Profit-Over-Sales Gap Is the Plan

For years, Walmart’s financial framework asked investors to watch comparable sales and operating income side by side, on the theory that expense discipline would keep the two aligned. The FY26 10-K describes a different framework. The Margin section of Management Discussion and Analysis states the objective directly: “Our objective is to achieve operating income leverage, which we define as growing operating income at a faster rate than net sales.” The mechanism, according to the same section, is “our mix of businesses, including expanding our ecosystem in higher margin areas, such as digital advertising.”

That is a structural shift in how Walmart describes its own profitability to investors. The company is telling shareholders that margin growth is no longer primarily a function of cost-of-goods management and expense leverage in the stores. It is a function of business mix, and the higher-margin businesses pulling mix in the company’s favor are the ones layered on top of the retail operation.

Furner’s letter picks up the same thread in language calibrated for a broader audience. He writes that “the consistency of our results reflects strong execution in our core business, digital innovation, re-imagining how we accelerate delivery speed, and business mix.” Four pillars. Business mix is one of them. When a CEO uses his first letter to shareholders to name business mix as a pillar of performance, alongside the core business itself, the mix has stopped being a tailwind and started being the plan.

Penner’s proxy letter reinforces the framework from the capital-allocation side. He writes that Walmart views all capital deployment, “whether in AI, automation, or our store and club expansion and remodel programs,” through the lens of return on investment, and that the discipline “will ensure that we can scale newer, tech-powered businesses alongside our core retail operations to drive growth at a lower marginal cost.” The phrase “lower marginal cost” is the one to sit with. It implies that the initial capital investment has been made and the next dollar of investment produces more operating income than the last one did. Advertising, data, marketplace, fulfillment services, and membership are the businesses Penner’s framing points to.

For suppliers, the implication is that Walmart’s P&L has effectively split into two engines. The first engine is the one the supplier community has negotiated against for three decades: cost, velocity, in-stock, margin on goods sold. The second engine is the one suppliers fund directly but often treat as separate spend on a separate spreadsheet, Walmart Connect, the data-and-insights businesses suppliers know as Scintilla and Data Ventures, Marketplace commissions, WFS fees, membership economics through Walmart+. The FY26 filings are telling shareholders the second engine is now the primary vehicle for operating income growth. The higher-margin businesses are growing three to ten times faster than the core. The allocation conversation inside most supplier organizations has not caught up to that fact.

The $150 Billion Number Is the One Worth Re-Reading

Walmart reported $150.4 billion in global eCommerce sales in FY26, up 24%. Walmart U.S. eCommerce alone was roughly $99.6 billion, up from $79.3 billion the prior year, according to the segment disaggregation. Walmart added roughly $20 billion of incremental U.S. eCommerce net sales in a single fiscal year.

Furner’s letter then delivers the single most important business disclosure in the document set. He writes: “We have re-imagined the role of stores as part of an end-to-end commerce solution that creates flexibility for customers, and our U.S. eCommerce business is now profitable.”

That sentence, read against years of supplier conversations with merchants, reframes the economic logic of the Walmart.com relationship. Suppliers have been told, directly and indirectly, that online fulfillment is a cost center, that digital operations run at a loss that the stores subsidize, and that marketplace fees, WFS rates, and Connect spend exist to recover those losses. Whatever version of that conversation suppliers have absorbed from their merchant teams over the last five years, it is now operating against different underlying math. The retailer is no longer negotiating to cover losses. It is negotiating to compound margin.

Furner makes the operational side of that profitability concrete. “Last year, in the U.S., our team delivered nearly 9 billion units same or next day. This performance is a result of leveraging our digital and physical stores, our marketplace expansion, and the innovation in our supply chain.” Walmart is describing same-or-next-day fulfillment at that volume as a function of its existing physical footprint, its marketplace, and its supply chain working as one integrated system. The stores are no longer a standalone retail asset with a fulfillment function attached. They are the fulfillment backbone of the second engine.

The capital allocation disclosure in the 10-K confirms the direction. In FY26, Walmart U.S. spent $16.5 billion on what the 10-K groups as “Supply chain, customer-facing initiatives, technology and other,” out of $23.4 billion in total U.S. segment capital expenditures. That category is larger than store and club remodels ($5.6 billion) and new stores ($1.4 billion) combined, by nearly a factor of two and a half. And the FY27 guidance of $25 to $27 billion keeps the same stated focus on “technology, supply chain and customer-facing initiatives.” Walmart is not telling shareholders it will slow its investment in the second engine. It is telling them the foundation is built, and the scaling is now the cheaper phase of the build.

The Merchant Organization Is Now Run by the People Who Built the Second Engine

Executive succession disclosures are typically the least-read section of an annual report. In FY26, they are one of the most informative. Walmart’s proxy and 10-K together disclose a set of appointments effective February 2026 that, read together, describe a consistent pattern.

John Furner, who ran Walmart U.S. from November 2019 through early 2026, is now CEO of Walmart Inc.

Seth Dallaire, who joined Walmart from Instacart in November 2021 and most recently served as Chief Growth Officer of Walmart U.S., is now Executive Vice President and Chief Growth Officer of the entire enterprise.

Daniel Danker, hired from Instacart in August 2025, where he was Chief Product Officer and Head of Online Grocery, having previously led Uber Eats product, is Executive Vice President of AI Acceleration, Product and Design.

David Guggina, who ran Walmart U.S. supply chain, then Walmart U.S. eCommerce, is now Executive Vice President, President and CEO of Walmart U.S.

Latriece Watkins, who was Chief Merchandising Officer of Walmart U.S., is now Executive Vice President, President and CEO of Sam’s Club U.S.

Chris Nicholas, who ran Sam’s Club U.S., is now Executive Vice President, President and CEO of Walmart International.

Six appointments. The common thread across all of them is that the people now running Walmart’s core merchandising, stores, clubs, and international operations all built their most recent credibility inside the technology, supply chain, eCommerce, advertising, or data-and-product parts of the business. Walmart has not installed second-engine thinkers at the top. It has installed the people who built the second engine as the operators of the first.

For a supplier, the practical implication is specific. The merchant chair across the table at the next line review is increasingly someone who spent the prior two to five years inside a P&L where Connect, Scintilla, WFS, or automated fulfillment was the growth lever. That shapes what the merchant asks for, what the merchant rewards, and what the merchant considers table stakes.

The 10-K also discloses a second operational signal pointing in the same direction. In the Distribution section: “During fiscal 2026, we began combining the Sam’s Club U.S. supply chain function with Walmart U.S. to streamline operations and leverage our enterprise systems and infrastructure over time.” This is an organizational move toward shared economics across Walmart U.S. and Sam’s Club U.S. Suppliers who currently maintain separate Walmart and Sam’s P&Ls, separate pack sizes, separate trade funding, separate promotional calendars, separate merchant relationships, should assume the retailer’s view of those two relationships will become more integrated over the next several planning cycles, not less. The merchant organization is being built to evaluate suppliers across the entire Walmart Inc. ecosystem. Walmart U.S. as a single segment still contributes 68% of consolidated net sales. Sam’s Club U.S. contributes another 13%. That is 81% of consolidated net sales sitting inside two segments whose supply chains are being combined and whose merchandising leadership pool is being cross-pollinated.

AI Is the Mechanism That Makes the Lower Marginal Cost Real

Penner’s “lower marginal cost” framing in the proxy is not abstract. The FY26 filings and Furner’s letter describe the specific AI-powered mechanisms that are how marginal cost actually comes down. The supplier community has heard a great deal about AI in retail over the last three years, most of it vague. The FY26 filings are specific.

Furner describes Sparky, Walmart’s customer-facing AI agent: “Our AI agent, Sparky, is helping customers save time, create solutions, and find the things they want and need at everyday low prices, creating a future for Walmart that is high-speed, convenient, and personalized.” He continues on the associate side: “Whether it is one of our new programs to certify our associates as AI proficient, obtain a commercial driver’s license to become a Walmart fleet driver, manage a store, or develop their own solutions using our vibe coding platform, we create opportunities to advance their careers.”

That is a concrete inventory of what Walmart has in production in FY26. A customer-facing AI agent. Company-wide AI proficiency certification for associates. An internal vibe coding platform that lets associates build solutions in natural language.

The 10-K Risk Factors section goes further. It identifies “emerging agentic platforms” as a channel through which customers will increasingly shop and comparison-shop. It warns that “a greater concentration of eCommerce sales, including increasing online grocery sales and the increasing role of AI-enabled platforms in product search, discovery, advertising and purchasing, could result in a reduction in the amount of traffic in our stores and clubs.” And it acknowledges that AI has “intensified existing cybersecurity risks” and is creating “novel categories of cyber threats.” Walmart is telling shareholders, in its own risk disclosure, that the discovery surface is moving and that the threat surface is evolving alongside it.

Read all of this together and the planning implication for suppliers sharpens. AI-powered search and discovery on Walmart.com is becoming the filter through which a shopper encounters the product at the digital shelf. Agentic shopping tools are reshaping the path from intent to purchase in ways that sit outside traditional search-term optimization, Connect bid strategy, and content-score tuning. And Sparky is the customer-facing end of that system.

This reframes the Scintilla and Data Ventures relationship. If the discovery layer is increasingly AI-mediated, and the AI is trained on Walmart’s first-party transaction data, the commercial terms under which a supplier accesses that data change character. Data Ventures is no longer a rearview-mirror measurement tool for past campaign performance. It is, functionally, an input into how future discovery happens. Suppliers who treat Scintilla as a nice-to-have line item in the media budget, negotiated annually and approved grudgingly, are going to find that decision carries more strategic consequence than the budget debate implied.

The 1P and 3P Implications Diverge Here, and They Matter

The mix-shift story affects 1P suppliers and 3P Marketplace sellers differently. The divergence has to be named directly, because the FY26 filings do different things for each group.

For 1P suppliers, the question is how much of the cost-of-goods conversation should be re-scoped as a services-and-ecosystem conversation. The merchant’s operating income target is increasingly backed by Connect revenue, Scintilla data revenue, WFS contribution, and membership fee growth rather than by pure gross margin on goods. A supplier who walks into the FY27 line review with a cost concession as the centerpiece of the conversation is competing against a supplier who brings a Connect commitment scaled to category, a Scintilla data agreement, a Walmart+ promotional plan, and a clear view on how their brand contributes to the merchant’s ecosystem P&L. The FY26 filings, read as a framework, suggest the second supplier is going to win that meeting more often than they used to. Not because the first supplier’s cost is wrong. Because the first supplier is negotiating against only half of the merchant’s P&L.

For 3P Marketplace sellers, the story is different in shape but points in the same direction. Marketplace commissions, WFS fees, and sponsored-search advertising are the levers Walmart is using to make its eCommerce business profitable. A 3P seller’s fee structure is, in a meaningful sense, the retailer’s margin structure. The $150.4 billion global eCommerce net sales line and the nearly $6.4 billion advertising revenue line are both lines that sellers contribute to directly through commissions, fulfillment fees, and sponsored-search spend. Sellers should expect the fee-and-ad-spend side of the Walmart.com relationship to become more central to the conversation, not more incidental. WFS adoption in particular is likely to be treated by Walmart less as a service offering and more as an economic alignment between the seller and the retailer’s own eCommerce margin goals. Sellers who have resisted WFS on cost grounds should model the decision against what happens to their visibility, search placement, and promotional access inside an increasingly AI-mediated discovery environment, not just against per-unit fulfillment economics.

Where the two segments converge is on the planning mechanics. Both 1P suppliers and 3P sellers are being asked to fund a retailer whose operating income growth is now structurally tied to what suppliers and sellers contribute in advertising spend, data subscriptions, fulfillment fees, and marketplace commissions. That is a different relationship than the one the industry was designed around. Supplier finance teams that built their trade-funding and retail-media budgets as separate line items with separate ROI standards are going to find that the retailer across the table evaluates those line items as a single integrated contribution. The supplier organizations that get this right in FY27 planning will be the ones whose commercial and marketing leaders walk into line reviews together.

The Framework Furner Is Asking Shareholders to Hold Him To

Furner closes his letter with a sentence most readers will skim: “Our global advertising business allows our customers to find the most relevant items they want to buy from our suppliers and sellers, and the scale of these solutions are improving the returns we generate for our shareholders.”

That sentence is the framework compressed into one line. Advertising. Customers finding items. Suppliers and sellers. Returns to shareholders. Walmart’s CEO, in his first letter, has connected those four things in a single sentence as if they were one system.

The FY26 documents are not telling suppliers and sellers to expect a big change. They are reporting that the big change has happened, that it is producing the results the company committed to, that the capital will continue to flow into scaling it, that the people who built it are now running the operation, and that the shareholder returns framework depends on its continued execution.

Suppliers who read the filings as a strong-sales year will build FY27 plans that optimize for the first engine. Suppliers who read them as Furner intends them to be read will build plans that treat Connect, Scintilla, Walmart+, WFS, and the merchant relationship as components of a single negotiation. Over a three-year planning horizon, that is the difference between a supplier relationship that runs on cost negotiation and one that runs on shared growth inside the ecosystem Walmart has built.

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