Walmart Inc. is the world’s largest retailer selling a broad spectrum of products ranging from grocery and entertainment to sporting goods and crafts.
From humble beginnings, as a small discount retail store, Walmart today has expanded manifold to become one of the largest value chain retailers operating 11,700 stores in 28 countries and e-commerce websites in 10 countries. The company operates through three reportable segments: Walmart U.S., Walmart International, and Sam’s Club. Walmart U.S. is the largest segment (accounting for ~60% of total revenues) and operates retail stores in all 50 states in the U.S., Washington D.C. and Puerto Rico. Latin America, the UK, and Canada are Walmart’s other important international markets.
Walmart has a strong physical as well as digital presence. The company operates through three primary store formats – Supercenter, Discount Store and Neighborhood Market in the U.S. Most of the Walmart stores are strategically located within ten miles of densely populated areas. Approximately half of Walmart’s stores are located in international markets.
The company has a wide distribution network which is one of the largest in the world. It consists of more than 150 distribution centers and a transportation fleet comprising 6,100 tractors, 61,000 trailers and more than 7,800 drivers.Investment Data
- Opportunity Score: 42
- Ticker: NYSE:WMT
- Sector: Consumer Defensive
- Industry: Retail - Defensive
- Market Cap: 319.67B
- P/E: 38.61
- Dividend Yield: 1.89
- Dividend Payout Ratio: 73.10
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Walmart is popularly known for offering low prices on a very wide range of products. With more than 70 years of experience under its belt, the company has built up an unrivalled scale and size which is tough for newcomers to replicate. It serves nearly 270 million customers per week.
Walmart has scaled up its technological capabilities and has built a strong e-commerce business with close to 100 million unique visitors each month. The company is continuously investing heavily in expanding its portfolio of e-commerce sites and in technology. U.S. e-commerce revenues grew 44% last year. In order to sustain the digital momentum, Walmart is expanding online grocery in Canada, Mexico, and China as well as broadening its delivery capabilities in the U.S., China and other international markets. Other than various initiatives such as online grocery, mobile express checkout, free 2-day shipping, etc. the company has also made strategic investments in businesses like Jet.com and Flipkart to expand its online product offering.
In order to improve overall customer experience, Walmart doubled the number of stores offering online grocery pickup to more than 1,100 locations in the U.S. and is expecting to add another 1,000 locations in FY19. The company has an enviable brand reputation and a strong mass appeal and is the one-stop shopping destination for nearly all consumer shopping needs.
A large national distribution network, a broad assortment of merchandise, the huge scale and everyday low prices have made Walmart the undisputed retail leader. Future growth will be driven by capital investment in remodels, e-commerce, technology and supply chain. Walmart is expecting overall sales growth of at least 3% and U.S. e-commerce sales growth of 35% by FY20.
Walmart is a S&P Dividend Aristocrat having increased its dividends for the past 45 consecutive years. The company last raised its dividend by 1.9% and has compounded its dividend growth at 8.7% per annum over the last decade. It sports an annual yield of 2% currently.
Walmart has returned $14.4 billion in cash to shareholders through dividends and share repurchases. The company is a safe dividend paying stock and the trend should continue given its strong franchise. The Board authorized a $20 billion share repurchase program in October 2017.
Walmart is anticipating its earnings per share to increase by a low to mid single-digit percentage range y/y, excluding Flipkart. Everyday low prices, a broad assortment of products and a wide geographic footprint are Walmart’s strong competitive advantages. The company has been successful in building a wide moat in a super competitive industry over the years.
Walmart US competes with both physical retailers as well as catalog businesses. The company competes with the likes of large retailers such as Costco, Target, Dollar General Corp., etc. Costco Wholesale Corp, which is the world’s second largest retailer by sales, is a membership warehouse club providing branded merchandise at the low prices to its members. Target Corporation is the second largest discount store retailer in the U.S. offering a wide range of products across all consumer everyday essential categories. On the digital front, Walmart faces intense competition from Amazon.com which has disrupted the whole brick and mortar retailing business.
A strong focus on increasing its footprint both physically as well as digitally is critical to positioning the business for sustainable growth in the future. The company is undergoing a major transformation to better serve its customers and expects its investments to bear fruits in the future. Walmart’s dividend looks safe and it should continue its past growth streak in the future as well.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.