Slowly, but surely, Walmart Stores Inc (NYSE:WMT) is taking the fight to Amazon.com Inc (NASDAQ:AMZN). Should you buy Walmart stock?
With its latest earnings release, Walmart Stores Inc (NYSE:WMT) just proved that it's still in the race with e-commerce giant Amazon.com Inc (NASDAQ:AMZN). While Amazon clearly has a big early lead in terms of online retail, Wal-Mart's progress is promising. Wal-Mart is still a fair distance away from worrying Amazon. However, its second quarter earnings showed that it's definitely in the reckoning, suggesting that fears around the "death of American retail" may be overdone. Wal-Mart also has decent fundamentals. The company generates healthy amounts of operating cash flows and the stock carries a handy dividend yield. Based on Wal-Mart's technical charts, a further correction could be on the cards, and this could make the yield look even more attractive. Keep an eye on Wal-Mart shares in the coming days.
Wal-Mart Earnings Were Encouraging.
Wal-Mart reported its second quarter earnings last week, on the 17th of August to be precise. Wal-Mart reported good numbers, beating analysts' earnings and revenue projections for the quarter. Yet, Wal-Mart stock tumbled a few percentage points. Wal-Mart's revenue came in at $123.36 billion versus estimates of $122.84 billion. Meanwhile, adjusted earnings of $1.08 a share beat estimates of $1.07 per share marginally. Same store sales excluding fuel climbed 1.7%, while overall revenue grew by 2.1% YoY, and 2.9% on a constant-currency basis. Adjusted earnings grew by just under 1%.
More importantly, though, Wal-Mart's e-commerce revenue grew by an encouraging 60% YoY. That was marginally lower than the 63% growth it registered in the preceding quarter but significantly higher than the 29% growth in Q4 last year. Clearly, Wal-Mart's initiatives in the e-commerce space are paying off. Online gross merchandise volume or total unit sales grew by an even bigger 67%. In spite of Amazon's unrelenting growth, e-commerce remains highly under-penetrated. Online sales accounted for only 8.2% of the total U.S. retail sales in the quarter ended June 2017. So, clearly, there's room for more than just one player. And by the looks of it, Wal-Mart is doing its best to become one of the significant players.
Wal-Mart Is Taking The Fight To Amazon, Slowly, But Surely.
Wal-Mart has been actively pursuing the e-commerce business by building out its digital presence. Last year, the company acquired Jet.com for over $3 billion and appointed its CEO, Marc Lore, the head of its e-commerce business. Subsequently, it has added to its armoury with smaller acquisitions, including those of outdoor retailer Moosejaw, women's clothing company Modcloth, and men's clothing company Bonobos. The decision to buy Bonobos reflects what Wal-Mart has been trying to do. Quoting from a recent report:
"Bonobos is renowned for its seamless integration of online and physical retail stores, focus on customer service, and its minimalist retail footprint. Smaller locations in major cities allow customers to try on garments that are later drop shipped. Wal-Mart gained access not only to more affluent shoppers but the expertise in creating a hybrid business model that combines physical and digital retail."
One of Lore's contributions to Wal-Mart was its 'Pickup' program, which allows shoppers to buy online and pick up their goods from a store. Given that reportedly 90% of Americans live within 10 miles of a Wal-Mart store, it's easy to see why the company has been offering discounts to incentivise such purchases, curbing the need for last mile logistics. Even as Amazon.com works towards improving its physical presence with more warehouses, Wal-Mart is leveraging its strength to try and beat Amazon at its own game. On the delivery front, the company has been offering free shipping for orders that exceed $35. At a time when some even believed that brick-and-mortar physical locations were a liability in the Amazon era, Wal-Mart is putting itself in a position to use this presence in multiple ways, like in-store pickups and last mile delivery. And Wal-Mart's large presence means it can potentially meet, if not beat, Amazon's speed. For now, victory may still be a fair distance away. However, it's clear that Wal-Mart is more than just an 'also ran' in this race.
Wal-Mart Stock - What Else You May Like.
For starters, growth has accelerated from its 5-year CAGR of 1.2% to over 2% in the latest quarter. Wal-Mart generates healthy amounts of operating cash flows and continued to do so, at over 2 times net income in the second quarter. In the most recent quarter, Wal-Mart paid out $1.5 billion in the form of dividends and repurchased $2.3 billion worth of company shares. That's an attractive buyback, given Wal-Mart's current market cap of about $240 billion. The annual dividend translates to a yield of about 2.57%, which isn't bad at all. Wal-Mart is also part of the elite 'dividend aristocrat' club, having increased dividends every year for the last 25 years. The technical chart shows that a bearish Moving Average Convergence Divergence (MACD) crossover occurred on 17th August, suggesting that the stock could fall further this week. If it does, the yield could become even more attractive for income investors.
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