Will Walmart Overcome Amazon?

Walmart (NYSE: WMT) just demonstrated that Amazon (NASDAQ: AMZN) is not destined to rule the online retail universe. The big box giant’s online sales grew by 63% between the first quarter of 2016, and first quarter 2017.

Walmart.com now sells 50 million items compared to sales of 10 million last year, Fortune reported. That means Walmart increased its online sales volume by 40 million items in just 12 months.

If that was not impressive enough Walmart’s online sales volume increased by 16 million items over the last quarter. Fortune reported that Walmart.com sold 34 million items in the quarter that ended on January 31, 2017. Such growth is impressive because it occurred in February, March and April, three traditionally low sales months in retail.

 Is Walmart Making Money

The ecommerce growth is impressive but it is not cheap. The latest earnings report; that from April 30, 2017, indicates Walmart paid for the ecommerce growth with its net income.

Walmart reported a net income of $13.60 billion for the last quarter. That was down from $13.64 billion in January, 2017, $14.46 billion in October 2016, and $14.43 billion April 2016. The net income looks worse when compared to $16.11 billion from April 2015.

The bad news is that Walmart is making less money because of all the ecommerce spending. The good news is that Walmart’s revenues are still growing.

Revenues at Walmart rose to a record high of $487.51 billion on April 30, 2017. That was an increase of $1.64 billion over $485.87 billion for January 31, 2017. It was also a $4.30 billion increase over April 2016, when Walmart reported revenues of $483.21 billion.

The challenge for Walmart now is to translate that revenue growth into income which might be possible because Walmart is still generating a lot of cash. Now it needs to find ways to turn that cash into income.

Walmart is Generating a Lot of Cash

For all its weakness Walmart’s business still seems to generate a lot of cash. Some examples of Walmart’s cash generation capabilities include:

• $30.72 billion in cash from operations on April 31, 2017. This was impressive but it was down from $31.53 billion in January 2017; but above the $29.14 billion reported in April 2016.

 

• $6.545 billion in cash and short-term investments. This was down slightly from $6.867 billion in January 2017, and well below the $7.597 billion reported in April 2016.

• A free cash flow of $3.395 billion on April 30, 2017. This was less than half the $8.726 billion free cash flow reported in January 2017. It was also slightly lower than the $3.984 billion free cash flow billion reported in April 2016.

 

These numbers show us that Walmart is spending a lot of cash to catch up to Amazon. Interestingly it looks as if Walmart has simply stolen Jeff Bezos’ business plan of generate a lot of cash and spend it to buy more market share. Retail history buffs will recognize that as one of Walmart’s traditional strategies.

Is Walmart Losing Value?

They also show that Walmart has a lot of potential to generate float, but less float than historic levels.

Despite that Walmart’s value; like its’ revenue is slowly increasing. Walmart reported having assets of $199.72 billion on April 30, 2017. That was a slight increase over $198.82 billion for January 2017 and $198.71 billion in April 2016.

My guess is that Walmart’s value is dragged down by questionable foreign assets; including the British grocer ASDA and the Brazilian stores. It might also be hurt by all the recent online acquisitions; which can be hard to quantify, and questionable real estate in the United States. Walmart owns a lot of real estate in the Rust Belt, decaying rural areas of the South and depressed sections in the West.

Surprise Walmart’s Footprint is growing

Another drag on WMT’s value is that its footprint has actually been growing despite all the media hysteria about “Walmart closing stores” in recent years. Data provided by our friends at Statista clearly shows that Walmart’s store count and sales capacity are growing.

Statistics that prove Walmart is growing include:

• The total number of Walmart stores worldwide has grown in every year of this decade. Walmart operated 8,099 stores in 2010, 8,604 locations in 2011, 9,766 stores in 2012, 10,408 stores in 2013, 10,942 stores in 2014, 11,453 stores in 2015, 11,528 stores in 2016 and 11,695 stores in 2017.

 

• Walmart’s global footprint has grown by 3,596 stores over the past seven years.

 

• Walmart’s worldwide operations expanded by 167 stores between 2016 and 2017.

• Since 2012 the total number of Walmart stores in the United States has increased by 193. Walmart operated 4,479 US stores in 2012, 4,005 American locations in 2013, 4,203 United Stores in 2014, 4,516 US locations in 2015, 4,574 stores nationwide in 2016 and currently operates 4,672 stores in this country.

 

• The number of Walmart Supercenters in the US has increased by 493 since 2012. There were 3,029 American supercenters in 2012, 3,158 in 2013, 3,288 in 2014, 3,407 in 2015, 3,465 in 2016 and 3,522 in 2017.

 

• Walmart Neighborhood Markets are spreading like weeds. There were 210 Neighborhood Markets in 2012, 286 in 2013, 407 in 2014, 639 in 2015, 667 in 2016 and 735 in 2017.

• Walmart has opened 525 Neighborhood Markets in the US since 2012.

 

• Sam’s Club is still growing. There were 611 Sam’s Clubs in the United States in 2012; 620 in 2013, 632 in 204, 647 in 2015, 655 in 2016 and 660 in 2017.

 

• Walmart has opened 49 Sam’s Clubs in the United States in the past five years.

 

• Walmart discount stores; the company’s original layout, are slowly disappearing. There were 629 Walmart discount stores in the US in 2012; that number shrank to 561 in 2013, 508 in 2014, 470 in 2015, 442 in 2016 and 415 in 2017.

• 214 Walmart discount stores have closed since 2012. Note: many of those discount stores were replaced with Supercenters or Neighborhood Markets.

 

• Walmart has been opening an average of 105 Neighborhood markets, 99 Supercenters and 10 Sam’s Club a year in the United States over the past five years.

 

Walmart has Added A lot of Value

Skeptics will wonder if America needs all those new Walmart locations. Yet it is obvious that Walmart has added a lot of value to its footprint by greatly upgrading its infrastructure over the past few years.

More importantly the expansion efforts have concentrated on Walmart’s most lucrative market the United States. The expansion includes four new fulfillment centers each with a footprint of around one million feet to handle ecommerce MWPVL reported.

This adds to Walmart’s already humongous distribution center network in the United States which contains 661 million square feet of warehouse space. That makes the network larger than Manhattan Island, MWPVL noted. Walmart currently operates around 173 distribution centers in the USA.

The new fulfillment centers are certainly paying off as Walmart’s ecommerce numbers indicate. One reason why Walmart’s online sales are growing is that many of its prices are better than Amazon’s and its free shipping is actually faster as I discovered.

Walmart is Still a Great Value Investment

All of this shows us that Walmart is still a great value investment. It was definitely undervalued at $78.85 a share on May 23, 2017. Yet it offered shareholders a 17.86% return on equity on April 30, 2017, and a dividend of 50¢ on December 7, 2016.

My take is that Walmart will hold its own against Amazon but not overtake the Everything Store anytime soon. Despite that Walmart will remain a money maker and a great value investment for the foreseeable future.