Walmart’s Profit Metrics Slip on PhonePe ESOP Charge

Retail major Walmart saw a significant drop in its international profitability for the September quarter after recording a non-cash, share-based compensation expense of roughly $700 million tied to PhonePe, its India-based digital payments and fintech arms that is gearing up for an IPO (initial public offering).

“Return on investment, as measured over the last 12 months, declined slightly, primarily due to the PhonePe charge discussed earlier. Underlying ROI performance continues to improve, supported by capital discipline and operating cash flow strength,” the company said.

The development came after PhonePe was reported to have launched an ESOP buyback program valued at ₹700–800 crore as part of its pre-IPO preparations. The company, in which Walmart holds a majority stake, has already submitted draft documents through the confidential pre-filing route and aims to raise about ₹12,000 crore via a pure Offer for Sale.

Shareholders including Walmart, Tiger Global and Microsoft are expected to offload shares in the issue, with a combined dilution of around 10%. The Walmart-owned firm has appointed advisers, including Kotak Mahindra Capital, JP Morgan, Citi, and Morgan Stanley for the IPO, which is expected to be launched on Indian bourses by early 2026.

PhonePe Weighs on Walmart

The $700-million expense highlights how significant Walmart’s India bets, especially PhonePe, have become in driving both short-term earnings swings and long-term value. While the revaluation adds some noise to quarterly results, it also points to PhonePe’s rising valuation as it inches closer to its public-market debut.

Despite this accounting impact, Walmart lifted its full-year FY26 outlook for sales and operating income, which signals that management remains confident about the company’s underlying momentum.

Walmart reported a 0.2% dip in operating income at the consolidated level, largely because of the PhonePe charge. On a constant-currency basis, however, adjusted operating income rose 8%.

Its adjusted EPS stood at $0.62, excluding certain gains and settlements, and factoring in an additional $0.07 of PhonePe-related share-based compensation.

The company's key profitability ratios also softened: ROA slipped to 8.4% and ROI to 14.8%, with each metric falling roughly 30 basis points, around 25 basis points of which stemmed directly from the PhonePe ESOP revaluation.