Walmart Inc. (WMT) reported earnings for Q4 2019 on Tuesday, and the retail giant’s financials handily beat expectations. The results provided some comfort to investors who, despite seeing some strong returns so far this year, endured the same rout that most market participants endured in the last couple months of 2018.
But Walmart’s Q4 numbers don’t hold much meaning when taken out of the context of the world-turning retail revolution. As millions of consumers turn to the Internet to purchase their goods, Walmart’s foothold in the industry’s expanding online landscape will likely make or break its stock in the long term.
Let’s dive deeper into the newest financials from the world’s largest brick-and-mortar retailer – and figure out exactly what they mean in the context of this broader battle…
The Numbers
Walmart’s earnings per share (EPS) and revenue numbers topped Wall Street estimates by solid margins. Even more impressive was the company’s e-commerce sales specifically, which saw what most analysts would consider to be unbelievable growth.
The firm reported an EPS of $1.41 for the October-December period, crushing the estimated $1.33 by more than 6%. Revenue came in at $138.8 billion, which surpassed the $138.65 billion estimate by 0.1%. While it only edged by analyst expectations, Q4 2019 revenue grew by nearly 2% from $136.3 billion during the same quarter in 2018.
But the report’s most significant metric was e-commerce sales growth. Despite the looming sentiment of the Commerce Department’s gloomy holiday sales data, Walmart posted online sales growth of 43% in Q4 and 40% in 2018 overall. This was mostly thanks to the company’s heavy investment in online grocery delivery services, which should lead the firm to reach its average quarterly growth target range of 30% to 40% this year.
As for other guidance estimates, Walmart forecasts sales growth of 3% for fiscal 2020, which didn’t budge from the October outlook as the company looks into deconsolidating operations in Brazil, among other cost-cutting measures.
How Investors Reacted
Market participants embraced Tuesday’s earnings by pushing WMT stock up more than 2% to $102.20 per share. That marks the highest settlement since Nov. 13 when shares closed at $102.94 before plunging over the following six weeks to a more than five-month low of $85.82 on Dec. 24.
With Tuesday’s gain, WMT shares have climbed 9.7% year-to-date.
The Bigger Picture
While the broader story in the retail sector has long been “Amazon vs. everyone else,” the strongest competitor in that “everyone else” camp remains Walmart, which, for the most part, hasn’t lost the battle yet.
Despite Amazon.com Inc. (AMZN) making up about 50% of all online sales in the U.S., Walmart’s 43% growth in that area certainly supports the argument that it could catch up. That being said, Walmart also maintains a lead on Amazon in several other ways that the former doesn’t seem to be focusing on too much despite its rapid growth.
As the world’s largest private employer, Walmart’s physical presence – the fact that consumers can physically walk through its doors – not only makes it more appealing in terms of employment but also in terms of sheer visibility. The company reports that 90% of all Americans still reside within 10 miles of a Walmart store, leading to a dominance over department store chains like Sears and Toys “R” Us that have become signature horror stories of the “retail apocalypse.”
Walmart’s strategic purchases have also helped the firm elude Amazon’s rapidly growing shadow, including the high-profile $16 billion acquisition of a 77% stake in Indian e-commerce firm Flipkart last August. Although India reportedly wants to be more hands-on with how Walmart operates in the country, there’s no denying the massive potential of the Indian retail market. Online sales are projected to grow from $13.4 billion to $200 billion over the next seven years, and the giants like Walmart currently making moves in the region will be poised to benefit the most.
However, it’s the unique mixture of foot traffic to stores and online traffic to Walmart’s websites that executives claim give the company an edge over Amazon’s mostly online realm. CEO Doug McMillon mentioned in the earnings call that the flush of new online grocery customers ensures a positive outlook for the company since “those who shop both in store and online spend twice as much in total and spend more in stores.”
Looking Ahead
While Walmart’s influence appears to be waning to the majority of consumers that instinctively go to Amazon, the retailer’s latest earnings prove that isn’t necessarily so. By making huge progress in e-commerce and staying true to its brick-and-mortar tradition, Walmart is showing it can appeal to every type of shopper looking to buy something at a reasonable price.
As for investors, WMT still retains plenty of value as a long-term hold. It’s especially valuable for those interested in paying only $102.20 a share compared to Amazon’s egregiously high $1,627 a share. At the rate Walmart is catching up, there’s no denying the appeal of such a low price for a company with such massive growth potential ahead of it.