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Wal-Mart to Invest in eCommerce with ShoeBuy Acquisition

Zacks Equity Research

Online retailer Jet.com, owned by Wal-Mart Stores Inc. WMT, has acquired Boston-based footwear-shopping website ShoeBuy for about $70 million. The deal closed on Dec 30, 2016. The acquisition is a strategic one and is in line with the company’s efforts to expand its eCommerce investments and compete with online giant Amazon.com, Inc. AMZN.

ShoeBuy, which offers more than 800 brands of shoes, clothing and accessories, will continue to operate as a stand-alone website, and will complement Jet.com, which sells a wide range of products, including electronics, furniture, specialty foods, household, beauty items and also a smaller assortment of clothes, shoes and accessories. Further, this acquisition will give Jet.com access to expand in the footwear industry. ShoeBuy will also bring access to a large assortment of products that will enhance both the variety and the customer experience.

It seems that the retail giant is leaving no stone unturned to acquire a stake in the online business. In this regard, it continues to make huge investments in e-commerce initiatives, including acquisitions. After the acquisition of the U.S. e-commerce company, Jet.com, Inc. last year in September, Wal-Mart is also aiming to acquire a stake in India's largest eCommerce firm, Flipkart Online Services Pvt., in order to expand in the fast-growing online retail market.

Bentonville, AR-based Wal-Mart is also aggressively foraying into eCommerce in China with an aim to deliver goods from its stores around the world to Chinese consumers within hours. In June, Wal-Mart inked a deal with JD.com to sell its Chinese eCommerce business, Yihaodian in exchange for a 5% equity stake in the company. On Oct 6, Wal-Mart increased its stake in Chinese eCommerce website, JD.com Inc., from 5.9% to 10.8%. The move was in line with the company’s aim to grab greater market share in the world’s largest online market and expand its reach in China, where it has been struggling of late. JD.com is the second-largest online retailer in China after Alibaba Group Holding Ltd. BABA in terms of market cap.

Apart from acquisitions, Wal-Mart has also launched its own mobile payment system called Walmart Pay. This allows shoppers to pay through its existing smartphone app. After testing the new payment system at selected stores, Wal-Mart launched the facility in all of its 4,500-plus U.S. stores in Jul 2016. This marks another step toward accelerating its online business, and making shopping easier and faster.

Wal-Mart has also partnered with ride hailing services Uber and Lyft for speedy online grocery deliveries. Moreover, it intends to roll out drones in the near term for product deliveries to Wal-Mart facilities as well as to consumer homes.

We note that the company has been making efforts to understand the evolving needs of its customers to regain their confidence, and thus, boost sales in the face of increased competition from traditional and online competitors. Apart from investing in eCommerce activities, the company is also paying its workers more and training them to improve its stores’ performance. Wal-Mart being the largest private employer in the U.S. with 2.2 million staff, has decided to invest $2.7 billion toward raising their wages and providing them extra training in fiscal 2017. Under the initiative, Wal-Mart raised its minimum wage to $9 an hour in April, and to $10 per hour in Feb 2016.

In another news flow, Wal-Mart reached an agreement with Visa, Inc. V to continue accepting Visa credit cards in Canada which had been barred since June. The company’s Canadian unit had threatened to expel Visa from all of its 409 stores nationwide following a very high charge for credit-card transactions.

Wal-Mart Stores has remained almost in-line with the index since past one year. We note that in the said period the stock has improved 8.9%, in comparison to the Zacks categorized Retail-Supermarkets industry, which showcased growth of 4.5%. We believe there is still much value left in the stock, which is quite evident from its Value score of ‘A’, Growth score of ‘B’ and VGM Score of “A”.

What further makes us optimistic about its performance in the near term is its low beta of 0.10 and long-term earnings growth rate of 5.3%. Further, the retailer has delivered positive earnings surprises in the past five consecutive quarters.

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Wal-Mart currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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