The world’s largest brick-and-mortar retailer had a huge boost from the pandemic but is still struggling with e-commerce. Is Walmart stock a good buy?
Walmart (NYSE: WMT), the retail titan, has had 24% growth in revenue since 2011, reaching nearly $524 billion — a significant, steady growth for a corporation this size. Although its stock price has remained virtually flat since the start of the year and through the pandemic sell-off, it beat all forecasts for its first-quarter financials earning $134.62 in revenue versus $130.91 and reported $1.18 EPS versus the $1.12 consensus. Walmart had a 74% boost in e-commerce sales as well, but it also discontinued Jet.com, an e-commerce company it purchased for $3.3 billion in 2016 and it has yet to turn a profit in that division. Is Walmart a good investment?
The bull case for Walmart
Walmart will match any retailer’s price, whether brick-and-mortar or online. This is an important factor to consider during the pandemic as a lot of people are left jobless or with lower wages and this is how the company retains a loyal consumer base. Its terrific quarterly report aside, Walmart is a retail powerhouse that has paid an increasing dividend since 1974, when it first started offering a payment.
Groceries account for more than half of the company’s U.S. sales and it saw a fourfold growth in new customers using its online grocery pickup and delivery service since mid-March and growth in spending on discretionary items (clothing, toys, office supplies) after the stimulus checks were issued. Demand was so great that Walmart had to hire 235,000 additional workers and spent nearly $900 million on coronavirus-related spending like bonuses, paid leave for sick employees, and preventative measures like masks and temperature checks. Another source of revenue for the company (which was unreported in their quarterly report) is its 12% ownership of China’s biggest online retailer JD.com (NASDAQ: JD), which saw its revenue increase 21% last quarter compared to the same quarter a year prior at $20.6 billion.
To boost its e-commerce presence, Walmart partnered with Shopify (NYSE: SHOP) and by year’s end is expected to offer sales from 1,200 merchants on its online marketplace. In 2016, the company acquired Jet.com and with it got a talented team of online experts, including its founder, Marc Lore, who helped Walmart’s e-commerce division increase sales every year since the purchase, growing 176% in three years; little wonder that Lore was made president and CEO of Walmart’s U.S. e-commerce division. The company had a leg-up on the competition during the pandemic by having its stores (including its membership-only Sam’s Club stores) cover product shortages from warehouses; additionally, it started offering two-hour express delivery in over 2,000 of its stores and these factors, along with the slew of new customers it gained, will assure continued growth for the retailer.
The bear case for Walmart
Although it has seen growth in its e-commerce division, it has yet to turn a profit and faces competition from Amazon’s (NASDAQ: AMZN) Whole Foods grocery division, Walmart’s strongest online sector. Along with Jet.com, Walmart has made some poor e-commerce investments in companies like Bonobos, Eloquii, and ModCloth; aside from all three being unprofitable, it had to lay-off Bonobos members and sold ModCloth for less than it purchased it. Additionally, its Jetblack concierge shopping service was discontinued for being unprofitable.
In 2019, the company lost $1 billion in revenue for its e-commerce division while Amazon had Prime membership grow from 100 million to 150 million members. Amazon is also beating Walmart in non-grocery items, with its general merchandise sales rising every year and while Walmart dominates the grocery sector with its huge variety of products and price-matching, it’s seeing smaller margins than it would with other items, like electronics.
So, is Walmart a good investment?
Deliveries, especially one-day deliveries, can be very expensive for e-commerce companies and that’s where Walmart holds an advantage. Walmart has a huge logistics operation with its brick-and-mortar stores; with 90% of Americans living within 10 miles of a store, the company uses its stores as warehouse spaces for its products and thus pays less for deliveries. Compared to Amazon’s price, Walmart is available at a deep discount as it guns for dominance in e-commerce, which it might achieve with superstar Marc Lore (who analysts feel is the real reason behind Jet.com’s acquisition) behind the wheel.
Doug McMillon, Marc Lore runs e-commerce.
Yes, quarterly at $0.54 for 2020, a 1.8% yield.
$121.68, as of market close on June 22, 2020.
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