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Sangara Narayanan
Sangara Narayanan
Articles (539) 

Walmart Emerging as a Worthy Challenger for Amazon

Other retailers are bound to suffer because of this growing duo

May 19, 2017 | About:

Walmart (NYSE:WMT) always had the size and scale; what it was lacking was the confidence and agility to take on Amazon (NASDAQ:AMZN), which was disrupting the brick-and-mortar space. But a lot has changed in the way Walmart operates.

After pouring billions of dollars into technology and watching its online sales inch up instead of racing to the top, Walmart took the acquisition route to bolster its online offering. It also accepted its mistake in operating way too many store formats and settled down to keep pushing the neighborhood stores. And all those efforts are paying off, quarter by quarter, while most other retailers around the country are struggling to get customers to walk through their doors.

Walmart reported solid first-quarter earnings numbers that saw the company beat earnings estimates while revenues came in below expectations. Wall Street was expecting earnings per share of 96 cents and revenues of $117.74 billion; the actuals came in at $1.00 earnings per share and revenues of $117.5 billion.

The stock may move lower due to the missed sales expectations, but a comparable store sales growth of 1.4% in the U.S. and a growth of e-commerce GMV by 69% shows that Walmart has certainly regained its footing in its home territory. Amazon continues to eat into the U.S. market at double-digit rates, and Walmart, due to its size, has the most to lose from that. But growing comparable store sales and e-commerce shows that Walmart has found its position against Amazon, which should help the retail juggernaut in a big way moving forward.

This will be huge problem for retailers around the country. On the one hand, they have Amazon eating up billions of dollars from their own markets in sales every quarter; and on the other, the biggest retailer in terms of sales is slowly inching up as well. The smaller players are going to be toast due to the war at the top because neither of these companies is going to allow each other an inch, let alone the rest of the competition.

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Walmart has guided second-quarter comparable store sales of 1.5% to 2% in the U.S., slightly higher than the numbers they reported for the first quarter. The best part about Walmart’s comps in the first quarter was that the sales growth was due to increased traffic while ticket was slashed by 0.1%. You don’t see that very often: a company as big as Walmart reducing average ticket price but ending up reporting comparable-store sales growth due to increased traffic.

Other retailers will now be forced to either keep up with the Waltons and Bezoses, as it were, or see their numbers get hit quarter after quarter until something gives.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

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About the author:

Sangara Narayanan
Sangara Narayanan holds an MBA from Kent State University, Ohio, and has worked on the floor as a trader in New York. You know where. He is passionate about capital markets and specializes in business analysis, stock valuations and making chicken curry

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