ECommerce Will Be The Central Theme In Wal-Mart Stores, Inc Q2 Earnings

  • Walmart is in the middle of a massive transformation, moving from traditional retail to an e-commerce business.
  • The company has invested heavily in improving both back and front-ends of the e-commerce business.
  • Core activities improvement is still important to support the massive shift to e-commerce.

The retail giant Walmart (NYSE:WMT) will report its fiscal Q2 2017 next week, amid significant M&A developments aimed at strengthening the company’s e-commerce business. In the previous earnings call, CEO Doug McMillon had discussed Walmart’s e-commerce efforts: “E-commerce growth here is too slow. The U.S. number is better than the global number, but neither is as high as we'd like. We can see progress against several of the necessary capabilities we need to win in e-commerce, but we're still working on a few others. We need them all to come together to see stronger growth.”

Also Read: Is Under Threat From Walmart

CEO McMillon touched on an important point during the previous earnings call – the company is going through a deep and fundamental shift from the traditional retail service in a brick-and-mortar location to a better, cost-efficient e-commerce service that brings great growth potential. CEO McMillon admitted that the company grew its e-commerce business too slowly, mainly due to serious headwinds in China, Brazil, and the UK markets. Shortly after the call, Walmart started acting to achieve its e-commerce growth target. The first step was to partially abandon the MCX’s consortium of retail giants that stood behind the e-payment service named ‘CurrentC’, which was aimed to compete with Apple Pay and Android Pay. While CurrentC was getting ready for a nationwide introduction, Walmart launched Walmart Pay, a standalone e-payment service that allows Walmart customers to check out and pay their Walmart bills quickly and easily.

Partnership With In China

In China, after a disappointing performance by its Chinese subsidiary Yihaodian, which Walmart acquired for $1.5B, the company decided to rethink its strategy there and joined forces with (NASDAQ:JD) to expand its business in China. The deal with included selling Yihaodian to in exchange for $1.5B worth of shares that gave Walmart a 5% stake in the Chinese e-commerce giant. There are significant benefits for both the companies from this move. It will allow Walmart to cover all of mainland China and attract massive consumers’ traffic to its online shop on the platform.

Acquisition Of

Walmart, in an effort to strengthen its e-commerce positioning in the U.S., opened more warehouses, across the country, that would keep additional inventory to support a two-day shipping service that competes with Amazon's (NASDAQ:AMZN) Prime. The logistics centers expansion in the U.S. will allow Walmart to improve shipping speed and item availability across the country and evolve as a valid alternative to other e-commerce platforms. Improving the logistics chain was the first step that Walmart took to improve its e-commerce business domestically – the next step was to acquire the e-commerce startup, for $3.3B.

In an earlier article, I described as a premature business that did not threaten Amazon mainly because its business model made it hard for the company to expand the business. relies on ultra razor-thin margins that are backed by large merchandise volume that is achieved by subsidizing purchases, keeping minuscule inventories, and incurring zero transaction costs. In October 20015, eliminated the annual subscriber fee, which had been the primary revenue stream for the company. And that, together with increased pressure from investors, who had poured in $570M at a $1.5B valuation, ensured that the company was headed for either a buyout or bankruptcy.

eCommerce Will Be In During The Earnings

The acquisition completes the domestic e-commerce move that Walmart had started.  Through the acquisition, Walmart has strengthened the front end of the firm after dealing with the back end (logistics chain). With such a robust change in its e-commerce operations, Walmart is well positioned to compete with Amazon in the U.S. and Alibaba in China. With all the latest developments in its e-commerce business, the primary focus in the upcoming earnings will be on the company’s e-commerce progress and future growth, and that includes Walmart Pay adoption, e-commerce YoY growth, China and US potential, and developments in ShippingPass (Amazon Prime competitor).

Another aspect of the shift to e-commerce is Walmart’s physical location restructuring in the U.S., Latin America, and Asia, targeted to strengthen Walmart’s core business to support the e-commerce rise and allow this massive change in strategy. Walmart should continue to modestly improve its core business in the US and worldwide to create a stable basis for the e-commerce change to prosper.

These are Walmart’s comparable figures to watch out for in this earnings release:

Q2 2017 Consensus Q2 2016 Actual
EPS $120.3B $120.23
Revenue $1.022 $1.08

Lior Ronen Lior Ronen   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and WMT stock

Do share this awesome post