Back Up the Truck on WMT

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For the last decade, Amazon (AMZN) has punished big box retail stores. 

Some argue they took Toys R US, Sears, JC Penny, RadioShack, Sports Authority, and Circuit City out of the game. 

However, the undisputed king of retail still holds the title.

To this day, Walmart (WMT) remains the largest publicly traded retail company, garnering 12.6% of the market.  

Furthermore, it remains the largest private employer in the world, with 2.2 million employees.

But will it eventually lose its title to Amazon and go the way route as the companies mentioned above?

With the firm recently announcing earnings, it’s time we take a deep dive into its business. 

Check out our analysis below…

Walmart’s Business

As the world’s largest publicly traded retail company, Walmart (WMT) claims 12.6% of the retail market. 

The company operates supercenters, supermarkets, warehouse clubs, cash and carry stores, discount stores, and membership-only warehouses (Sam’s Club). 

It also does business online through its websites: walmart.com, walmart.ca, flipkart.com, and samsclub.com.

WMT breaks down its business into three segments: Walmart U.S., Walmart International, and Sam’s Club. 

The firm announced that its Walmart U.S. comp sales grew 6.5%, and its eCommerce growth was 12% during Q2 FY23. Its Walmart International net sales were up 5.7%. And Sam’s Club comp sales increased by 9.5%.

In addition, its global advertising business grew by nearly 30%, thanks to Walmart Connect in the U.S. and Flipkart advertising. 

All of this came against an intense inflationary backdrop and congested supply chains. Like many discount retailers, Walmart sources a significant portion of its inventory from China.

Financials

During its last quarter, WMT’s revenues reached $152.9 billion, a jump of 8.4% from the same quarter last year. In addition, its net sales were $151.4 billion, an increase of 8.2% from Q2 FY22.

Despite its massive size, WMT has grown its revenues year-after-year since 2016. Furthermore, its grown its gross profits consistently over the last decade. 

The company has raised its dividend every year for the last decade plus which now stands at $2.24 per share annually or 1.56%.

WMT spits out cash with operating cash flow ($9.2 billion in Q2 FY23) and free cash flow ($1.7 billion in Q2 FY23). 

Besides its dividend distributions, the firm also bought back $5.7 billion in share repurchases in Q2 FY23. 

Before its Q2 FY23 quarterly announcement, WMT had $68 billion in total debt, and cash of upwards of $11.8 billion, boasting a market cap of $363 billion. 

Valuation

WMT has a P/E GAAP (ttm) of 28.53x, which is significantly better than its 5-year average of 32.12x. Its price-to-sales of 0.64x is in line with its 5-year average of 0.63x.

During its latest quarterly announcement, WMT showed an EPS of $1.77 adjusted, beating the street’s expectations of $1.62.

Profitability

WMT runs a very profitable shop. During Q2 F23, the firm reported its return on assets was 5.8%, and return on investments to be 13.8%. One concern is that the company’s inventories have increased, so WMT will likely discount some items to clear shelf space and prepare for the holiday season.

The firm boasts double-digits in its return on equity and return on total capital. Its cash from operations (ttm) of $17.5 billion may seem impressive, but it’s below its 5-year average of $28.43 billion. 

Growth

WMT has consistently grown its revenues year-over-year, although modestly. However, it does reward investors through its dividends and share buybacks. The company believes it can find more pockets to grow. One of the promising aspects of the business is its subscription service Walmart+, and its advertising business which grew by 30% last quarter. 

Our Opinon 10/10

WMT is the world’s largest company by revenue, with about $570 billion in annual revenue. It is also the largest private employer in the world, with 2.2 million. 

For years investors have been waiting for it to fall like many other big box retail stores. However, its been able to make adjustments, and is showing signs of growth through certain segments of its business. 

Shares are down 13.3% from its 52-week highs. Which we believe creates a buying opportunity. Regardless of what happens to the economy, WMT has proven it can navigate through difficult and good times. We like this stock for the next 12-24 months, and are buyers at these levels.