Walmart: A Defensive Choice During High Inflation?
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Welcome to our Opportunity Mining section.
The company we'll dive into this week is Walmart Inc (NYSE: WMT).
Walmart is the world's largest retailer by revenue. On February 21, 2023, the company gave a weaker-than-expected outlook for the fiscal year 2024 after it posted a strong holiday quarter.
How does inflation affect Walmart's business?
01 Business Model
Founded in 1962, Walmart began as a small discount retailer and expanded into a global retailer and wholesaler.
Walmart now operates approximately 10,500 stores and clubs under 46 banners in 24 countries and eCommerce websites.
The company divides its businesses into three reportable segments: Walmart US, Walmart International, and Sam's Club.
In the fiscal year 2023, Walmart's total revenue was US$611.3 billion, and its adjusted operating income reached US$24.7 billion.
Here's Walmart's revenue breakdown for FY 2023:
02 Strength
Concerns about high inflation have weighed on American consumers.
Due to stubbornly high inflation, consumers are spending less on discretionary items, according to a CNBC survey. This affected Walmart's general merchandise sales, including toys, electronics, home, and apparel.
However, Walmart is gaining more market share in groceries thanks to continued inflation, according to Guggenheim analyst Robert Drbul. Walmart has built up a reputation for providing affordable and discounted products, which helps it attract more budget-conscious shoppers.
Data from FY23Q3 Earnings shows that for Walmart US, comparable sales, or same-store sales, rose 8.3%, excluding fuel. At Sam’s Club, same-store sales rose 12.2%, excluding fuel.
03 Growth Potential
E-commerce is one of the growth drivers of Walmart.
The retailer offers online shopping on its website and through its app.
In recent years, the company has invested heavily in omni-channel and e-commerce innovation and made several e-commerce acquisitions.
Walmart is now the second largest e-commerce company in the United States after Amazon.
Data from Statista shows that Amazon leads the market with a 37.8% share, and Walmart, which ranks second, has a market share of 6.3%.
In Q4 FY2023, e-commerce sales jumped by 17% year over year for Walmart US.
04 Financial
Walmart reported fiscal 2023 four-quarter earnings that beat analysts' estimates on February 21, 2023.
Its revenue grew 7.3% year-over-year to US$164 billion, compared to Refinitiv's estimate of US$159.72 billion.
Adjusted EPS for the quarter was US$1.71, higher than Refinitiv's estimate of US$1.51.
Over the last four fiscal years, Walmart has maintained strong cash flows and delivered generous returns to shareholders.
The company generated US$29.1 billion in operating cash flow in the fiscal year 2023 and returned US$16 billion to shareholders through dividends and share repurchases.
05 Risk
● Strong Competition in the Retail Industry
Walmart's competitors include retailers, wholesale club operators, omni-channel retailers, and other businesses.
As entrants with brand-new business models or deep pockets continue to come in, each of these sectors sees more intense competition and rapid evolution.
In addition, for e-commerce and other internet-based businesses, smaller entrants might be in a better position to innovate and compete with giants like Walmart.
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more
