Walmart Stock Needs to Overcome the Growth Bumps
Wal-Mart Stores Inc (NYSE:WMT) stock has been rallying upward this month, and WMT stock closed at $69.37 last Friday.
However, Walmart stock may come under pressure ahead of the fourth-quarter results to be announced before the market opens on Tuesday.
There are concerns surrounding the company’s e-commerce initiatives, which will take more time to bear fruit. As Amazon.com, Inc. (NASDAQ:AMZN) goes on gaining strength, time seems to be running out for WMT shares.
However, Wal-Mart Stores Inc has major strengths, which is likely to make things better for WMT shares in the long run. As investors look for growth in the retailer’s e-commerce business as well as what guidance the management provides in its forthcoming results, let us go through the major factors working in favor of Wal-Mart.
Wal-Mart E-Commerce Push Is Through Jet.com
Technology is changing the world, and the retail industry is no exception. With Amazon continuing its online retail juggernaut and opening up hi-tech stores, what will Wal-Mart do to counter the threat?
Wal-Mart has already started investing heavily in the e-commerce space with the major $3.3-billion acquisition of Jet.com in 2016.
In the third-quarter results announced in November last year, the company’s management was upbeat about its efforts in the e-commerce space. In its conference call with analysts, Wal-Mart CEO Doug McMillon said that the company is excited to see the traction in Walmart.com. (Source: “WAL-MART STORES, INC. (NYSE: WMT) Third Quarter Fiscal Year 2017 Earnings Call,” Wal-Mart Stores Inc, November 17, 2016.)
Doug McMillon further explained how Jet.com fits perfectly in Wal-Mart’s strategy. “Walmart’s advantage has always been in providing the lowest prices on a basket of goods, and Jet has created a unique way to deliver the lowest cost basket online.”
Marc Lore, the founder of Jet.com, heads the e-commerce initiatives of Wal-Mart, and he has wasted no time in taking the required steps. The two companies have been working on accelerating the integration efforts and leveraging their strengths like optimizing the combined fulfillment networks.
Wal-Mart has cut about 200 e-commerce jobs in its offices in California in January of this year. Marc Lore had written in a memo to staff that Wal-Mart was focused on adding the right talent to the team and investing in ways that directly improve customer experience. (Source: “Wal-Mart to Cut 200 E-Commerce Staffers in California,” The Wall Street Journal, January 24, 2017.)
With the investments and efforts made over the last year, it appears that Wal-mart has what it takes to compete with Amazon.com in the e-commerce territory. Although WMT shares have suffered over the past few years, Wal-Mart Stores Inc has the strength required to make it big as an online retailer.
Chart courtesy of StockCharts.com
Wal-Mart Stores Is a More Profitable Retailer than Amazon.com
Wal-Mart may take some time before the company’s investments start to boost its top line. However, in the long run, WMT stock will be in a better position to benefit from the changing retail landscape.
Wal-Mart’s annual sales come at close to half a trillion dollars, and the retailer has presence in a number of countries around the world. Its global e-commerce sales had risen by about 20% last quarter.
The key thing for investors is that Walmart stock has been paying dividends, as the company has been profitable consistently. This is in stark contrast to Amazon.com, Inc., which still has a long way to go before it starts posting regular profits every year.
Amazon.com, Inc. has also planned a lot of investments in logistics and original content in order to keep pushing up its revenue, but this would put more pressure on its margins.
Amazon.com is becoming more like a diversified technology giant, with many growth catalysts working in its favor. Whereas, for investors looking to profit from the e-commerce growth, WMT stock turns out to be more attractive on the basis of its growth plus dividend potential.
E-commerce will be the major growth catalyst for Wal-Mart moving forward, but the traditional physical stores will continue to attract customers as well. The importance of having physical stores can be judged from the fact that Amazon.com has also planned the launch of brick-and-mortar stores across the country and is experimenting with different new formats.
Wal-Mart is already strong in brick-and-mortar retailing ,and will need to focus on making the most of its strengths before Wal-Mart shares start looking up.
Walmart stock has underperformed the benchmark S&P 500 index over the last year, and has disappointed investors. However, with a long-term perspective, the company has the resources to compete with its competitors in the online retail space, and any surprise in the fourth-quarter results will be positive for WMT shares in the short term.