Why Walmart is a dominant force in the U.S. retail sector

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Mass merchandiser Walmart (WMT), is the world’s largest retailer with over 10,900 stores in 27 countries. The company generated net sales of over $473 billion worldwide in FY2014 (February 1, 2013–January 31, 2014—the company’s fiscal year ends January 31), more than four times its nearest competitors, Carrefour S.A. of France and Costco (COST) of the U.S. Walmart’s (WMT) U.S. sales made up between 9–10% of total U.S. retail sales in 2012—excluding food services and motor vehicle and parts dealer sales. As a result, observed sales trends at the company would help investors understand future trends in certain retail sector businesses.
Part 2

Key takeaways from Walmart’s first quarter FY2015 sales

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Consolidated net sales increased 0.8% from last year to $114.2 billion, driven by increases in the smaller neighborhood stores (same store sales up 5%) and global e-commerce sales (up 27%). However, U.S. same store sales declined by 0.08%. Severe winter weather reduced same store sales by 0.2%, according to the company. Diluted earnings per share from continuing operations came in at $1.10—down 3.5% from last year and missing consensus estimates. This was largely due to a higher than expected tax rate, severe winter weather impacting sales, and adverse currency movements that affected conversion of international sales.

Market impact

Walmart’s (WMT) stock price dropped by 2.4% on May 15, after the earnings release. The price of the State Street SPDR S&P Retail ETF (XRT), which has ~1% of its holdings invested in WMT, dropped by 1.2%, while the S&P 500 Index (VOO) fell by 0.9%. WMT is also one of the 30 stocks tracked in the Dow Jones Industrial Average (DIA). The price of the SPDR Dow Jones Industrial Average ETF (DIA) which tracks the Dow Jones Industrial Average, dropped by 0.9% following the earnings release.

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The market may have over-reacted to Walmart’s (WMT) earnings release and taken a short-term view. The company is in the process of implementing store strategies and investing in technology that will give shoppers omni-channel shopping options. With over $473 billion in annual revenues, implementation of newer strategies will have to be on a massive scale to ensure that growth is visible and not swallowed by the retailer’s huge existing revenue base.

To get a sense of the sheer scale at which the retailer operates, Walmart’s online sales were estimated at ~$10 billion in 2013, making it the fourth player in terms of U.S. online sales (Source: The Internet Retailer). However, this represented less than 3% of the retailer’s revenues. Amazon (AMZN) is the leading U.S. online player. Its online U.S. sales were estimated at ~$68 billion (Source: The Internet Retailer).

To learn about some of Walmart’s sales strategies, continue reading the next part of this series.

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