Both Stocks Beat Revenue Estimates. Both Fell More Than 7%. Here’s What Happened.
Walmart and Target both reported Q1 FY2027 earnings before the open on May 21, 2026. Both posted top-line revenue beats. Both stocks fell more than 7% anyway. For options traders, the lesson embedded in this day is one of the most important in earnings trading: reported numbers are only half the equation. Guidance is the other half, and it can gut a trade even when the headline numbers look fine.
- WMT beat on revenue and EPS but guided cautiously due to fuel costs, falling 7.3% vs. a pre-earnings expected move of approximately 4.1%
- TGT beat on revenue with improving same-store sales, but EPS missed by 24.7% year-over-year, falling approximately 7.4%
- Both stocks moved significantly more than what options markets had priced in: the opposite dynamic from the NVDA May 20 earnings where the stock moved far less than expected
- Long straddles and long puts on WMT ahead of earnings would have been profitable; short premium positions on WMT would have been hurt
- The WMT consumer health warning (fuel cost pass-through, discretionary spending pressure) rippled across retail sector sentiment
The Numbers: What Each Company Actually Reported
| Metric | WMT (Walmart) | TGT (Target) |
|---|---|---|
| Revenue | $177.75B | $25.44B |
| Revenue Growth (YoY) | +7.3% | +6.7% |
| Diluted EPS | $0.67 | $1.71 |
| EPS Growth (YoY) | +19.6% | -24.7% |
| Same-Store Sales | Beat estimates | First positive in 5 quarters |
| Stock reaction (May 21) | -7.3% to $121.34 | -7.4% |
| Pre-earnings expected move | ~4.1% | ~6-7% |
Walmart’s headline numbers were solid. Revenue grew 7.3%, EPS grew nearly 20% year-over-year, and same-store sales held up. But the company disclosed it absorbed $175 million in operating income headwinds from elevated fuel costs in Q1, and warned that high gas prices could force consumer price increases. That forward guidance, not the backward-looking results, is what moved the stock.
Target’s story had a different wrinkle. Revenue grew 6.7% and same-store sales turned positive for the first time in five quarters, a genuine operational improvement the company had been working toward. But EPS fell 24.7% year-over-year, a significant miss on the bottom line even as the top line improved. Analysts responded constructively: DA Davidson raised its price target to $155 (from $140) and RBC Capital raised to $153 (from $132). Yet the stock still fell sharply on the day.
The Expected Move vs. Actual Move Comparison
This is where the options analysis gets interesting. Before the reports, the options market had priced approximately a 4.1% expected move for WMT. The actual move was more than 7%: the stock moved nearly twice as far as options pricing anticipated.
For TGT, the expected move going into earnings was in the 6-7% range based on at-the-money straddle pricing. The actual 7.4% move was roughly in line with what options markets expected for that name.
Compare this to NVDA’s May 20 earnings, where the NVDA recap article covered the stock falling ~1.7% versus an 8% expected move. In that case, implied volatility significantly overpriced the actual move, and premium sellers collected the difference. WMT on May 21 was the opposite: options were underpriced for the actual move, and anyone who had sold premium on WMT took a loss relative to the straddle’s theoretical value.
Why WMT Exceeded Its Expected Move
The expected move is derived from at-the-money straddle pricing and represents the market’s consensus estimate of the one-day range. For consumer staples companies like Walmart, that range tends to be narrow because the business is more predictable: grocery and essential goods spending doesn’t swing wildly quarter to quarter.
What the options market didn’t adequately price in was the scenario where guidance is materially cautious even on a revenue beat. Walmart’s fuel cost warning was not a “bad quarter” signal. It was a forward-looking statement about margin compression and potential consumer price increases. That’s a different kind of uncertainty than a revenue miss, and it’s harder to price because it depends on factors outside the company’s control (energy markets, consumer behavior in a high-gas-price environment).
The 7.3% drop reflected the market re-pricing WMT’s near-term earnings power, not just reacting to the current quarter. That repricing can exceed the expected move even when the headline numbers beat.
What Each Options Strategy Looked Like (Hypothetical Examples)
The following examples are illustrative and hypothetical. No specific trades are recommended.
Long Straddle on WMT (Hypothetical)
A trader who bought an at-the-money straddle on WMT before earnings, expecting the stock to move more than the ~4.1% implied, would have profited significantly on this event. The 7.3% move was nearly double the implied expectation. The long put leg would have generated most of the gain, while IV crush would have reduced some of the upside on both legs, but the directional move was large enough that the straddle would have finished profitably.
Short Iron Condor on WMT (Hypothetical)
A trader who sold a WMT iron condor centered near the expected move range would have been at risk on the put side as the stock dropped through the short put strike. A condor defined at approximately ±5% (wider than the stated expected move) might have survived, but a condor using the actual stated expected move of ~4.1% as its wing definition would have faced losses on the short put leg.
Long Straddle on TGT (Hypothetical)
For TGT, the situation was different. The expected move was already higher at ~6-7%, and the actual move of ~7.4% was only slightly outside the range. A long straddle on TGT might have broken even or generated a small profit depending on exact strike selection and IV crush magnitude.
The Consumer Health Signal Hidden in the Results
Beyond the options mechanics, both reports together told a macro story. Walmart and Target are the two largest domestic retailers, split between consumer staples (WMT) and discretionary (TGT). When both report the same week, traders and economists use the contrast to gauge consumer health.
The May 21, 2026 data point was cautious: WMT’s guidance flagged fuel-cost pressure on margins and potential consumer price increases. TGT’s improving same-store sales suggest shoppers are returning, but EPS compression points to ongoing cost challenges. Together, these results painted a picture of a consumer who is still spending but in an environment where inflation-adjacent pressures (energy costs, goods prices) remain a factor.
For options traders watching sector exposure, the WMT and TGT results are a useful calibration for the broader retail and consumer discretionary sector going into summer.
Pre-Earnings vs. Post-Earnings: The Playbook Context
The WMT/TGT pre-earnings playbook (published before the May 21 results) outlined what to watch: the expected move differential between WMT and TGT, the IV setup, and the historical tendency for retail earnings to produce moderate moves. The May 21 results departed from the “moderate move” script, particularly for WMT.
The takeaway for the pre-earnings setup vs. post-earnings reality: WMT’s IV was priced for a known, low-variance business. That’s usually correct. This quarter’s guidance language, which was unusually specific about fuel cost headwinds, changed the calculus. When guidance contains a materially new forward-looking concern, the options market’s historical pricing model can understate actual risk.
Bottom Line
WMT and TGT both beat revenue estimates and both fell more than 7%. WMT moved nearly double its priced-in expected move because guidance introduced uncertainty that options hadn’t priced in. TGT moved roughly in line with expectations but disappointed on EPS. The day reinforces a core principle in earnings options trading: the headline number tells you what happened in the past quarter; guidance tells you what the market thinks will happen next. Options price in the distribution of possible outcomes, and when guidance contains a meaningful surprise, that distribution widens beyond what the straddle captured.
For traders who want to trade earnings systematically around consumer staples names, tastytrade publishes expected move data and historical move comparisons directly on the platform. For margin-efficient earnings positions requiring portfolio margin, Interactive Brokers offers the broadest access to earnings-period options with SPAN-based margin treatment.
FAQ
Q: Why did Walmart stock fall if it beat earnings estimates?
A: Walmart’s quarterly revenue and EPS both beat consensus estimates. The stock fell because the company disclosed $175 million in operating income headwinds from elevated fuel costs and warned that continued high gas prices could force price increases for consumers. That forward guidance introduced margin and consumer demand uncertainty that investors priced into the stock.
Q: What was the expected move for WMT going into May 2026 earnings?
A: Options markets priced approximately a 4.1% expected move for WMT around its Q1 FY2027 earnings report. The actual move was about 7.3%, significantly larger than what the straddle had implied.
Q: Did Target beat or miss earnings?
A: Target beat on revenue ($25.44B, +6.7% year-over-year) and reported its first positive same-store sales growth in five quarters. However, diluted EPS of $1.71 represented a 24.7% decline year-over-year, which weighed on sentiment despite the revenue improvement.
Q: How does the WMT/TGT result compare to the NVDA May 2026 earnings?
A: The contrast is sharp. NVDA reported a large revenue beat on May 20 but the stock barely moved (~1.7% lower), far less than the 8% expected move. WMT the following day reported a solid beat and fell more than 7%, exceeding its expected move. These two events illustrate the full spectrum of earnings outcomes: in NVDA’s case, the good news was already priced in (sell the news). In WMT’s case, forward guidance introduced new uncertainty that wasn’t priced in (guidance surprise).
Q: What happened to Target’s stock price after the earnings drop?
A: Target fell approximately 7.4% on May 21 following the earnings release. By the pre-market session on May 22, the stock had begun recovering, with multiple analyst upgrades citing the positive same-store sales trend as a sign of operational improvement. Analysts raised price targets (DA Davidson to $155, RBC Capital to $153) even after the single-day drop.