Lunar Capital Weekly Roundup
| Index / Fund / Rate | Start of Year | Last week | This Week | % change YTD |
|---|---|---|---|---|
| JSE ALSI | 73 723 | 70731 | 69 719 | -5.43% |
| NASDAQ Composite | 15 833 | 13047 | 12 705 | -19.76% |
| S&P 500 | 4 797 | 4280 | 4 228 | -11.85% |
| Prime Lending Rate | 7.25% | 9.00% | 9.00% | 24.14% |
| Lunar BCI WW Flexible Fund | 165.68 | 148.81 | 151.96 | -8.28% |
| USD/ZAR | 15.96 | 16.23 | 17.01 | 6.58% |
| EUR/ZAR | 17.95 | 16.64 | 17.08 | -4.85% |
| Brent Crude | 77.86 | 97.1 | 95.78 | 23.02% |
Source: iress
Company and Market News
Last week, Walmart released their Q2 2023 results. The results were good and it gave quite an interesting insight into the current spending behaviour of US consumers, primarily. Total revenue for the quarter increased by 8.4% compared to the same quarter a year ago. Gross profit for the quarter increased by 3.2%. And net income for the period increased by 20.4%.
The smaller increase in gross profit compared to the total revenue for Walmart indicates that Walmart were not able to sell all their inventory at the prices they initially planned to sell it at. The company noted that they reduced prices of some of their goods so as to not maintain a bloated inventory. This affected the gross margin for Walmart compared to the previous quarter. The gross margin for Walmart was 31.96% for Q2 2023 compared to 34.10% for the same quarter last year. The gross margin of a company is a good indicator as to how well a company can handle inflation. However, the absolute increase in gross profit resulted in Walmart increasing their net income significantly.
One of the drivers for growth in Walmart is its advertising business. Walmart has a large amount of consumer data, and are leveraging it to companies who want to advertise on their platforms. Their Ad business grew by just under 30%. An article in the Business Day suggests that Walmart could potentially roll out a platform that will allow social media influencers to market their products. Whether they are able to successfully do it or not is another question. Walmart already works with influencers to promote certain goods on other platforms. Currently, influencers are able to earn a commission on goods sold if a customer uses an influencer link to purchase a Walmart product.
The large scale of Walmart allows them to offer customers low prices for their goods. However, the net margins for the business remain quite low in comparison to other businesses, but they operate at such a large scale that they are still quite profitable in absolute values. The low margins still provide a risk for the company, as it means they are quite price sensitive to input costs. If we look at one of their competitors, Amazon, Walmart’s margins are significantly lower as Amazon has a highly profitable cloud service: AWS. This allows Amazon to offer similar prices to the eCommerce consumers while generally maintaining higher margins in their overall business.
Below is a table comparing certain metrics of Walmart to metrics of a year ago.
| Period | Price at end of week of Q2 results release ($) | EPS | Gross Margin | Net Margin | ROE |
|---|---|---|---|---|---|
| Rolling 12-months Q2 2023 | 137.02 | 5.00 | 24.60% | 2.36% | 16.21% |
| Rolling 12-months Q2 2022 | 150.45 | 3.56 | 25.10% | 1.78% | 11.53% |
Disclosure: Walmart and Amazon are held in the Lunar BCI Worldwide Flexible Fund.
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