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Wal-Mart (WMT) to Buy Online Men's Fashion Retailer Bonobos

Zacks Equity Research

Retail giant Wal-Mart Stores Inc. WMT is reportedly in talks to invest in Bonobos, one of the hottest men's clothing brands in the US, according to Recode. The retail giant is seeking to expand in the fast-growing online retail market and compete with the largest U.S. online retailer, Amazon.com, Inc. AMZN. As per sources, Wal-Mart, the biggest U.S. retailer seeks to invest $70 million in Bonobos, though final terms of the deal are still under wraps.

Founded in 2007 by CEO Andy Dunn and Brian Spaly, Bonobos started as an e-commerce shop, catering to the needs of athletes. Later, this New York-based company also started producing dress shirts, suits and outerwears. Nordstrom, Inc. JWN is an investor in Bonobos and started carrying the brand in stores and on its e-commerce site since 2012.

Other than online sales, Bonobos also has more than 30 brick-and-mortar showrooms, called Guideshops, where customers can customize their orders and get them delivered at homes.Bonobos generates between $100 million to $150 million in annual revenue.

Bonobos’ collaboration with Wal-Mart will be beneficial for both parties. Bonobos will get capital from Wal-Mart to expand its portfolio, while Wal-Mart will be able to better compete with Amazon. The acquisition will also help the company to strengthen its footprint in the growing apparel industry in the online space.

If the deal finalizes, it will be the retailer's fourth major e-commerce acquisition since the buyout of Jet.com, U.S. e-commerce company, in Sep 2016. In March, Jet.com acquired trendy online clothing seller, ModCloth. Prior to ModCloth, Wal-Mart bought Moosejaw, an outdoor apparel and gear retailer for $51 million and e-commerce shoe retailer ShoeBuy for $70 million in 2017.

Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise


Wal-Mart Stores, Inc. Price, Consensus and EPS Surprise | Wal-Mart Stores, Inc. Quote

Wal-Mart is also aggressively foraying into e-commerce in China with an aim to deliver goods from its stores around the world to consumers within hours. Wal-Mart has acquired 12.1% stake in Chinese e-commerce website, JD.com Inc. in Feb 2017, 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.

Wal-Mart also launched its own mobile payment system called Walmart Pay in all of its 4,500-plus U.S. stores in Jul 2016. This system enables shoppers to pay through its existing smartphone app. This marks another step toward accelerating the company’s online business and making shopping easier and faster.

Wal-Mart is also aggressively trying to get a share of the pie in the online grocery shopping and delivery industry.Most recently, Wal-Mart has introduced a new program wherein it is offering discounts on online items, only if shoppers pick up their orders from a nearby store. The discount given seems to be an added feature to Wal-Mart’s already existing delivery service called Walmart Pickup which enables customers to place orders online and then pick them up at a store for free.

In Jan 2017, the company started offering free two-day shipping to U.S. shoppers on a minimum order of $35 on over 2 million items. This program will replace Wal-Mart's existing two-day shipping program – Shipping Pass – that charges shoppers an annual membership fee of $49. It is interesting to note that unlike Amazon Prime (which charges customers $99 a year for two-day shipping) or Wal-Mart’s existing Shipping Pass program, shoppers does not need to pay any membership fee to avail the service.

However, it still faces many headwinds which are likely to impact earnings in the near term. Higher expenses, lower margins at Wal-Mart U.S. and currency headwinds are expected to affect the results. Nevertheless, the company’s efforts to boost sales and regain investors’ confidence remain impressive.

Share Price Movement

In fact, the stock exhibited a bullish run on the index since the past one year. We note that in the said period the stock recorded 4.7% growth, outperforming the Zacks categorized Retail-Supermarkets industry, which showcased improvement of just 1.6%. We believe there is still much value left in the stock, which is quite evident from its VGM Score of ‘A.'

What further makes us optimistic about its performance in the near term is its low beta of 0.13 and long-term earnings growth rate of 6.9%. Further, the retailer delivered positive earnings surprises in the past six consecutive quarters.

Zacks Rank & Key Picks from the Sector

Wal-Mart currently carries a Zacks Rank #3 (Hold).

Investors interested in the broader retail space may consider Burlington Stores Inc. BURL, which sports a Zacks Rank #1 (Strong Buy). Burlington has long-term earnings growth of 15.85%. You can seethe complete list of today’s Zacks #1 Rank stocks here.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
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