The world’s biggest retailer is investing to strengthen its competitive advantage
Thursday 25 Feb 2021 Author: James Crux


Loss to date: 5.1%

Original entry point: Buy at $145.80, 11 February 2021

Our ‘buy’ call on Walmart is 5.1% in the red, the shares selling off following a fourth quarter earnings (18 Feb) miss and a warning from the world’s biggest retailer that it expects sales to moderate this year.

Short-term investors were unnerved by Walmart’s plans to invest $14 billion in its business, yet we are bullish about the
Bentonville-based retail powerhouse’s market share and online prospects over the long term.

The consumer defensive colossus reported record sales for the fourth quarter and full year, though Q4 earnings of $1.39 per share came in shy of analysts’ estimates after Covid-costs and the repayment of UK property tax relief (linked to its soon to be divested Asda operation).

Total revenue for Q4 rose 7.3% to a forecast-beating $152.1 billion, with US like-for-like sales exceeding estimates with an 8.6% rise, with a boost as shoppers spent stimulus cheques on its keenly priced wares.

Covid winner Walmart’s US online sales grew by a heady 69%, although this did mark a slowdown on the 79% growth seen in the third quarter and was the slowest growth rate since the start of the pandemic, illustrating the headwinds Walmart will face as pandemic tailwinds begin to fade.

Walmart also announced plans to invest the best part of $14 billion in full year 2022 as it ramps up automation to fuel future growth and improves its supply chain and customer experience to stay ahead of demand and ensure it can compete with rivals including Amazon.

‘Change in retail accelerated in 2020,’ explained chief executive Doug McMillon. ‘The capabilities we’ve built in previous years put us ahead, and we’re going to stay ahead. Our business is strong, and we’re making it even stronger with targeted investments to accelerate growth, including raises for 425,000 associates in frontline roles driving the customer experience.’

McMillion argued that this is a time to be ‘even more aggressive because of the opportunity we see in front of us. The strategy, team and capabilities are in place.

‘We have momentum with customers, and our financial position is strong.’

Walmart also raised the annual dividend to $2.20, up 2% year-on-year and marking its 48th consecutive year of dividend increases. Combined with the approval of a new $20 billion share buyback, the payout hike served to highlight Walmart’s attractions as an attractive total returns story.

Growth rates may well slow as Walmart laps some very tough comparatives, yet this progressive, high-quality dividend payer with ‘Every Day Low Price’ at the cornerstone of its strategy is well placed to continue taking market share as hard-pressed US consumers seek to save money in the difficult economic times ahead.

SHARES SAYS: Keep buying retail winner Walmart. 

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