Walmart: Competing on all Shop Fronts

19 May 2023

Key Indicators

Source: Iress

Weekly Stocktake with Danyaal

Walmart: Competing on all Shop Fronts

Walmart, a business owned by Lunar Capital funds and clients, recently announced its Q1 2024 results. Notably, the company recorded a revenue of $152 billion, a 7.6% increase compared to the same quarter last year. Operating income saw a significant rise of 17.3% to reach $6.2 billion. However, Walmart had to make adjustments to the fair value of its investments, resulting in a $3 billion line-item decrease on the Income statement. Consequently, the diluted net income per a share decreased by 16.2% compared to the same quarter last year. During the quarter, Walmart achieved a gross margin of 24.3% and an operating margin of 4.1%.

Walmart has long been recognized for its focus on affordability and customer satisfaction. In a high-inflation environment consumers tend to “buy down”, i.e. they look for cheaper alternatives. Walmart could benefit from this trend. However, this is not the only front they are battling on. Walmart has recently ventured into the realm of e-commerce. In their latest financial results, Walmart experienced a noteworthy 26% growth in global e-commerce sales. Although e-commerce currently represents a relatively small portion of their total sales, it is growing at a faster rate compared to many of Walmart’s other business segments. The advertising segment is the only other segment exhibiting similar growth, with an increase in sales of 30% compared to the same quarter last year.

Walmart is strategically expanding its reach beyond its traditional competitors and targeting businesses that were not historically in direct competition with them. In the e-commerce realm, they are notably aiming to compete with Amazon, despite Amazon holding a significantly larger market presence. For the most recent fiscal year, Amazon’s e-commerce business recorded sales of $375 billion, while Walmart recorded e-commerce sales of $82 billion.

Walmart is also making strides in growing its advertising segment, which typically offers higher profit margins compared to many other industries. This could potentially contribute to Walmart increasing its operating margin. However, it is important to note that Walmart faces fierce competition in this arena from other advertising platforms such as Alphabet, Meta (formerly Facebook), and Amazon, again. This competitive landscape presents a challenging battle for Walmart. Nevertheless, their recent growth in the advertising sector suggests that businesses are choosing to allocate a portion of their marketing budget to Walmart, indicating a positive trend for Walmart’s advertising endeavours.

Amazon and Walmart are held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio Management clients.