If you’re looking for big blue-chip companies to boost your portfolio, you can’t go wrong with retailing giant Walmart (NYSE:WMT). Despite persistent prognostications calling for the death in traditional, brick-and-mortar retail, Walmart stock has withstood several market storms.
Source: Sam’s Club
Even the painful U.S.-China trade war couldn’t derail the industry stalwart. Yes, WMT stock did shed 4% last year. However, it was a much better result than many other publicly-traded firms during an exceptionally difficult time. For instance, big-box competitors Best Buy (NYSE:BBY) and Big Lots (NYSE:BIG) took a beating in 2018.
Better yet, promising developments in U.S.-China relations bode well for Walmart stock. Last year, CEO Doug McMillon worried that a protracted conflict would spell price hikes on affected Chinese-made goods. If so, the tit-for-tat tariffs could impact WMT shares negatively, as the retailer depends heavily on large-scale volume.
But if we take President Trump’s recent social-media posts at face-value, McMillion and his team avoided a bullet. The world’s top-two leading economies decided to take a breather regarding a scheduled tariff bump-up. Future talks could then lead to a trade deal, resolving a bitter, longstanding dispute.
On top of this geopolitical tailwind, WMT stock also received a temporary lift off its fourth-quarter fiscal 2019 earnings report. The company generated earnings per share of $1.41, simultaneously besting its consensus target and year-over-year benchmark of $1.33.
Additionally, WMT rang up $138.79 billion in revenue, exceeding analysts’ expectations for $138.65 billion. Just as importantly, the latest haul represented a nearly 2% lift from the year-ago quarter’s tally.
With the strong earnings beat, management proved the brick-and-mortar concept’s relevancy in the digital age. Furthermore, Walmart stock did something unexpected: it became a disruptive investment.
WMT Dominates Retail
Of course, in terms of retail disruption, no more threatening name exists than Amazon (NASDAQ:AMZN). As it charged up the charts, sector experts rightfully feared that Amazon would upend the entire retail industry.
But if we look closely at Q4’s details, we notice that Walmart stock is the real disruptor here. The company’s ecommerce sales skyrocketed 43%, an almost miraculous figure considering its size and blue-chip (read boring) status.
Yet this was no fluke. In its Q3 report disclosed in November 2018, the big-box retailer also reported 43% YOY growth. Additionally, management hit its target for 40% annual growth in FY 2019, something the leadership team has long guided. In FY 2018, WMT stock enjoyed 50% sales growth in e-commerce.
But it’s not just the performance scope that has Amazon worried. Recently, WMT has gone on a buying spree, picking up popular consumer brands like Art.com and Bare Necessities. Moreover, the company has stocked up its digital shelves with higher-end or celebrity-endorsed products.
Such a move potentially cuts into Amazon’s market share. As I explained last year, affluent shoppers gravitate heavily towards ecommerce. By focusing higher-end products in their online platform, and the other stuff in their brick-and-mortars for us plebs, WMT stock holistically captures retail demand.
If that weren’t enough, shoppers advantaging Walmart’s online grocery service contributed significantly to total ecommerce revenues. Here again, Walmart stock represents a direct challenge to Amazon. In 2017, AMZN caused shockwaves when it bought out Whole Foods Market. The intention here was not only to disrupt grocers, but to bring the industry to the 21st century.
However, it’s boring old Walmart that’s eating its rival’s lunch. This is the case both online and off.
Walmart Stock and Brick and Mortar
Despite significant progress in the ecommerce battleground, management hasn’t forgotten about its core brick-and-mortar business. This time, though, they’re going about it in a different way, and it’s paying off.
About a year-and-a-half ago, the company announced that it will open fewer stores in the domestic market. Rather than competing purely numerically, WMT instead chose to compete through quality. At the time, it was a risky proposition because again, retailers like Walmart live-or-die on volume.
But recent earnings results have proven this strategy’s viability. Customers who want the immediate gratification of in-store purchases still have that option. Plus, the renovated stores steal market share from the comparatively well-appointed Target (NYSE:TGT) stores.
The difference now, as we mentioned, is that more affluent customers have higher-end choices via Walmart.com.
However, in the international space, the company remains aggressive in store-count expansion, especially in Central America and China. I think this decision makes sense as developing countries feature consumer bases that wish to spend their newfound discretionary income.
On the other hand, developed countries like the U.S. have the “been there, done that” attitude. With these markets, the distinguishing factor isn’t quantity, but quality, convenience, and flexibility. Walmart is hitting these metrics with gusto, which is why I remain bullish on WMT stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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