Let’s cut to the chase…
This week on Investment Journal we’ve been contemplating the questionable state of the US consumer. And if their state really is questionable, that calls into question the future state of retail players throughout the economy.
It’s no secret to anyone paying attention that retailers have been facing their share of struggles since the pandemic.
Over the course of 2024, and with the S&P 500 up just over 25% year-to-date, some have worked their way higher. For instance…
Home Depot is up nearly 21% while Kroeger is up 28%. The Gap, who struggled through some volatility, is up 16%. And Best Buy is up just over 15%.
Others, however, have struggled…
CVS and Walgreens are off 28% and a disappointing 67% respectively. Macy’s is down 17% and Kohls is off 39%. Target recently took it on the chin giving up all its annual gains, now trading some 13% lower.
But then there are those who have outperformed like BJs Wholesale Club up 44% and Costco up a very solid 48%.
But none of these can touch Walmart — up a stellar 70% on the year.
Walmart vs. S&P 500 (YTD)
So is WMT the NVDA of retail?
To Dominate in Retail…
Walmart’s surge comes on the heels of a series of positive earnings reports. Most notably was last week’s earnings:
• Earnings per share: 58 cents adjusted vs. 53 cents expected
• Revenue: $169.59 billion vs. $167.72 billion expected
But not only that, they upped their guidance for the year looking for sales to grow between 4.8% and 5.1% versus their previous forecast of between 3.75% and 4.75%.
We noted this week that a sizable portion of that growth (75% of the gain) was from households earning over $100K per year. Not what you’d consider to be a typical Walmart shopper.
Clearly Walmart has been a force in the discount retail sector for years. But why have they been so dominant, attracting a higher income cohort while others (like Target) can’t keep up?
We think it’s because they’re a superior company. And here’s what we mean…
Like most of the competition, early on in 2022 WMT was struggling to rebound from the disaster that was the pandemic shutdowns. Their stock dropped nearly 25%. But by the end of the year they started to rebound while the competition lagged.
One of the main reasons?
Management!
They were better able to manage inventory issues that had arisen out of the pandemic. They were able to cut their Inventory overhang by more than $500 million in just one quarter by strategically discounting prices.
This faster path back to normal was in large part thanks to better management.
And that same savvy management has them over performing this year.
The Nvidia of retail?
We’ll see…
