What You Need To Know
Walmart (NYSE: WMT) reported strong Q4 performance, exceeding expectations in sales, gross margins, and earnings per share. Key factors for success include effective execution, market share gains in grocery and general merchandise, and improved profitability in e-commerce.
While overall price decline slowed in Q4, Walmart still gained market share across various categories, particularly among higher-income households. Looking ahead, the company forecasts steady sales growth driven by improved economic conditions and changes in its business mix.
Gross profit is expected to increase thanks to higher-margin segments like advertising, but some deleverage in SG&A expenses is anticipated due to advertising costs. E-commerce profitability is on track, with lower fulfillment costs and increased active customers.
The recent acquisition of Vizio will further expand Walmart's advertising platform in the connected TV business.
Read: The Exploding Connected TV (CTV) Opportunity in India for US Investors
Rollbacks have been successful in driving customer response and market share gains, particularly among higher-income households through digital channels.
While Walmart's recent update offered limited new insights on broader economic trends, the company observed a slowing in disinflation momentum during Q4. It reported a modest 1% inflation in like-for-like sales for the quarter, a deceleration from previous quarters.
Although general merchandise prices were lower compared to the past year and even two years ago in certain categories, the rate of price decline slowed in Q4, with prices decreasing less than anticipated. Additionally, the trend for food and consumables softened, resulting in retail prices in this segment being slightly higher than the previous year.
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Why This Is Important for Retail Investors
Performance indicators: Walmart's strong Q4 performance, including sales growth, gross margins, and earnings per share, provides valuable insights into the company's financial health. Retail investors can use these indicators to assess Walmart's profitability and make informed investment decisions.
Market trends: Walmart's market share gains in grocery and general merchandise indicate its ability to compete effectively in the retail industry. This can be seen as a positive sign for retail investors, as it suggests that the company is successfully attracting customers and growing its customer base.
E-commerce growth: The profitability of Walmart's e-commerce sector and its increasing number of active customers highlight the company's success in the online retail space. For retail investors, this signifies the potential for continued growth and revenue generation in this important segment.
Advertising expansion: Walmart's acquisition of Vizio and its efforts to build out its advertising platform into the connected TV business demonstrate the company's strategic moves to diversify its revenue streams. This expansion can offer new opportunities for growth and revenue in the future, which can be beneficial for retail investors.
Customer response and market share gains: The success of Walmart's rollbacks and its ability to drive customer response and increase market share is a positive indicator for retail investors. It shows that the company is effectively engaging with its target market and gaining a competitive edge, which can enhance long-term value for shareholders.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Growth Investing
Walmart's market share gains and e-commerce growth highlight its potential for future expansion, making it an attractive choice for growth-oriented investors.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Dividend Investing
Retail investors looking for income through dividends may find Walmart appealing, considering its strong financial performance and potential for profit generation.
Dividend investing targets companies that regularly distribute a portion of their earnings to shareholders as dividends.
Defensive investing
Walmart's consistent performance, market share gains, and diversified business operations make it a potential option for investors seeking stability during market downturns.
Defensive Investing focuses on securing a portfolio by choosing companies that are less sensitive to economic downturns.
Sector Rotation
Walmart's success in the retail industry can make it a compelling choice for investors employing sector rotation strategies, particularly those looking to allocate funds to consumer staples or e-commerce sectors.
Sector Rotation is the practice of shifting investment capital from one industry sector to another to take advantage of the economic cycle.
Diversification
Investors seeking to diversify their portfolios may consider adding Walmart, given its size, market presence, and varied revenue streams, which can help mitigate risk by spreading investments across different sectors.
Diversification spreads investments across various assets to reduce risk and volatility in a portfolio.
Read What Others Are Saying
CNN: Why Walmart is buying Vizio
WSJ: Walmart's Earnings Have the Stock on Track for Another Record Close
FT: Walmart says inflation was stickier than expected in latest quarter
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Popular ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)