Walmart (NYSE: WMT) has always been known for their innovation in the retail industry. From using RFID chips in the late 1990’s to track inventory, to beating the government to New Orleans after Hurricane Katrina, Walmart has consistently set the bar high for efficiency and logistics.
But the old Walmart is evolving. In April 2023, Walmart announced plans to automate their supply chain, leveraging their vast customer data to drive higher margins. This news has excited investors, as they anticipate increased profitability in the coming years.
One key factor impacting Walmart’s margins has been the rise of Amazon (NASDAQ: AMZN) in e-commerce. This has slowly eroded Walmart’s operating margin over the years, particularly in the general merchandise category. However, Walmart is poised to reverse this trend and improve their margins in the near future.
The New Walmart:
Walmart’s fiscal Q1 ’25 conference call revealed that a third of their operating income came from new businesses like data ventures and advertising. This shift in profit composition reflects Walmart’s focus on higher margin growth drivers and improved business mix.
Additionally, Walmart has been enhancing their e-commerce offerings, with online sales accounting for 16% of their revenue. While they have yet to reach their goal of having e-commerce revenue make up one third of total revenue, Walmart is making progress in this area.
Sam’s Club, a division of Walmart, has also been a significant contributor to margin improvement. Despite representing only 13% of total revenue, Sam’s Club has seen operating profit margins in the mid-20% range, a testament to their strong performance.
Technical Analysis:
From a technical standpoint, Walmart’s stock is showing signs of strength. Despite being overbought, Walmart has made new all-time highs and sustained them, outperforming Amazon in this regard. This resilience in the stock price bodes well for Walmart’s future performance.
Valuation:
As a consumer staple, Walmart typically trades at a higher PE multiple than its traditional EPS growth. Currently trading at 25x PE for the next three years, with an expected 10% EPS growth each year, Walmart remains a solid investment option.
Analysts are expecting $168.5 billion in revenue, $6.5 billion in operating income, and $0.65 in EPS for Walmart. While there may be some short-term fluctuations in operating income, the long-term outlook for Walmart appears strong.
In conclusion, Walmart’s strategic shifts towards automation, new revenue streams, and improved margins position them well for future growth. Investors should consider adding Walmart to their portfolio for potential long-term gains.
Walmart’s Q1 ’25 Results Show Impressive Growth in Revenue, Operating Income, and EPS
In Walmart’s fiscal Q1 of 2025, the retail giant saw a 6% increase in revenue, a 13% increase in operating income, and a 22% increase in EPS. The operating margin of Walmart US also expanded by 10 basis points to 4.9%.
The most compelling valuation metric for Walmart is its price-to-sales ratio, which remains below 1x at 0.75x. Comparing this to Costco, which has recently exceeded the 1x revenue metric after trading below it for 25 years, shows an interesting trend in the market.
While Costco has historically shown higher growth rates in revenue and EPS compared to Walmart, both companies are expected to reach $700 billion in annual revenue soon. Sell-side consensus estimates predict Walmart reaching $676 billion by January ’25 and $703 billion by January ’26, aligning with Amazon’s expected $700 billion revenue by December ’26.
Despite Walmart’s strong performance, its price-to-cash-flow and free-cash-flow ratios are still high. The stock is not considered cheap based on these metrics, except for the price-to-revenue ratio.
Walmart’s focus on margin expansion and revenue growth through new ventures positions it as a competitive player in the market. However, it is essential to note that the stock is not undervalued, especially in comparison to its historical performance.
Looking back at Walmart’s history, there were periods where the company underestimated Amazon’s influence, leading to challenges in its performance. However, Walmart’s strength in the grocery sector and its ability to adapt to the changing market dynamics have been key drivers of its success.
In conclusion, Walmart’s strategic initiatives and focus on its core strengths, particularly in the grocery segment, have positioned it well for future growth. While the stock may be overbought at the moment, investors can consider adding to their position on any potential weakness in the market.
Overall, understanding Walmart’s financial performance and market positioning can provide valuable insights for investors looking to make informed decisions about their portfolios and financial goals.