Walmart is the world’s largest retailer selling a broad spectrum of products ranging from grocery and entertainment to sporting goods and crafts. Walmart serves over 265 million customers each week.
From humble beginnings, as a small discount retail store, Walmart today has expanded manifold to become one of the largest value chain retailers operating 11,500 stores in 27 countries and e-commerce websites. The company operates through three reportable segments: Walmart U.S., Walmart International, and Sam’s Club. Walmart U.S. is the largest segment (accounting for ~65% of total revenues) and operates retail stores in all 50 states in the U.S., Washington D.C., and Puerto Rico. Latin America, the UK, and Canada are Walmart’s other important international markets. Walmart International accounts for more than 20% of sales and balance is from Sam’s Club (~10%).
Walmart has a strong physical as well as a digital presence. Online sales now account for almost 10% of Walmart’s overall business. The company operates through three primary store formats – Supercenter, Discount Store, and Neighborhood Market in the U.S. Most of the Walmart stores are strategically located within ten miles of densely populated areas. Approximately half of Walmart’s stores are located in international markets. The company has a wide distribution network which is one of the largest in the world comprising of extensive distribution facilities and a large transportation fleet.Investment Data
- Opportunity Score: 61
- Ticker: NYSE:WMT
- Sector: Consumer Defensive
- Industry: Discount Stores
- Market Cap: 383.38B
- P/E: 21.57
- Dividend Yield: 1.60%
- Payout Ratio (Earnings): 34.45%
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 7/10
Revenue Growth & Market Exposure
Grocery and consumables account for 60% of Walmart’s total sales, followed by fuel and tobacco, home and apparel, technology, office and entertainment, health and wellness.
In order to sustain the digital momentum, Walmart is expanding online grocery in Canada, Mexico, and China as well as broadening its delivery capabilities in the U.S., China, and other international markets. It is also targeting to add 250 new stores in Walmart International, primarily in Mexico and China. Other than various initiatives such as online grocery, mobile express checkout, free 2-day shipping, etc. the company has also made strategic investments in businesses like Jet.com and Flipkart to expand its online product offering. Walmart has, however, decided to discontinue Jet.com.
Walmart witnessed an uptick in demand for educational toys, exercise equipment, personal hygiene, and home and other discretionary categories goods as a result of the virus-induced lockdown in the latest quarter. There was a robust adoption of online pickup and delivery with the number of new customers adopting this option quadrupling since mid-March. Walmart.com also saw a surge in demand during the quarter as customers opted for shopping online. The company has also enhanced the scope of products that customers can now buy online. It expanded the SNAP online pilot to more states and launched Express Delivery delivering orders within two hours. The company is targeting Express delivery to reach 2,000 stores by the end of June. Walmart had to close a few stores and warehouses in some of its markets which led to volatility in sales for the quarter. It reported a negative gross margin as it incurred a higher cost to operate. However, each segment delivered strong sales growth despite operating limitations in some markets. Walmart’s strategy of providing multiple delivery options for customers has proven to be very successful during these tough times. The U.S. eCommerce business grew by 74%.
Walmart has an enviable brand reputation and a strong mass appeal and is the one-stop-shopping destination for nearly all consumer shopping needs. A large national distribution network, a broad assortment of merchandise, a huge scale, and everyday low prices have made Walmart the undisputed retail leader. The company expects future growth to be driven by capital investment in remodels, e-commerce, technology, and supply chain.
Walmart is a Dividend Aristocrat having increased its dividends for the past 46 consecutive years. The company last raised its dividend by 1.9% and has compounded its dividend growth at 8.4% per annum over the last decade. It has an annual yield of 1.8% currently and a payout ratio of 41%, granting enough room for future expansion. Walmart returned $11.8 billion in cash to shareholders through dividends and share repurchases in FY2020 and generated $25 billion in operating cash flow. The company is a safe dividend-paying stock and the trend should continue given its strong franchise.
Walmart’s US and Sam’s Club comparable-store sales continue to grow. Given its strong consumer defensive business model and more than 70 years of experience under its belt, the company has built an unrivaled scale and size which is tough for newcomers to replicate. Walmart has scaled up its technological capabilities and has built a strong e-commerce business with close to 100 million unique visitors each month. The company is continuously investing in expanding its portfolio of e-commerce sites and technology. On the brick and mortar front, Walmart also offers stiff competition in the grocery category, where only a handful of retailers are prepared to meet the demand for online grocery delivery. The company’s unmatched vendor relationships and a strong logistics network will further support its future expansion plans.
Walmart is focusing its capital allocation on e-commerce, technology, supply chain, and remodels making the overall shopping experience easier. Everyday low prices, a broad assortment of products, and a large geographic footprint are Walmart’s strong competitive advantages. The company has been successful in building a wide moat in a super competitive industry over the years.
Walmart US competes with both physical retailers as well as catalog businesses. The company competes with the likes of large retailers such as Costco, Target, Dollar General, etc. Costco is the world’s second-largest retailer by sales, is a membership warehouse club providing branded merchandise at the low prices to its members. Target is the second-largest discount store retailer in the U.S. offering a wide range of products across all consumer everyday essential categories. On the digital front, Walmart faces intense competition from Amazon.com which has disrupted the whole brick and mortar retailing business. Walmart’s omnichannel retailing offers a unique combination of the physical store and online purchases that stands unrivaled.
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|NYSE:WMT||WMT||Walmart||Consumer Defensive||Discount Stores||0.61||135.29||383.38||21.57||21.57||6.27||0.0160||0.3445||4||2.16||0.0403||7||7||Consumable - Discretionary||NO||YES||YES||NO||USA||1||1.60|
|NASDAQ:COST||COST||Costco||Consumer Defensive||Discount Stores||0.64||335.96||148.33||40.17||40.17||8.36||0.0083||0.3349||4||2.80||0.1255||10||5||Subscription||YES||YES||NO||NO||USA||1||0.83|
|NYSE:TGT||TGT||Target||Consumer Defensive||Discount Stores||0.67||148.82||74.50||21.48||21.48||6.93||0.0183||0.3925||4||2.72||0.0820||8||7||Consumable - Discretionary||YES||YES||YES||NO||USA||1||1.83|
A strong focus on increasing the footprint both physically as well as digitally is critical to positioning a retail business for sustainable growth in the future. Walmart is undergoing a major transformation to better serve its customers through online and physical stores, and expects its investments to bear fruits in the future. Given Walmart’s reasonable payout ratio and a consumer defensive business, its dividend looks safe. As an essential service provider, Walmart witnessed a surge in its retail activity as a result of the pandemic. The company is targeting the next wave of growth to come from online channels and its omnichannel retailing system.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.