Walmart (WMT) expects its earnings per share (or EPS) to return to growth levels by fiscal 2019. In the interim, the retailer’s profitability is likely to remain under pressure due to the impact of digital growth investments and other operating cost factors. The company anticipates that its operating margins will stabilize by fiscal 2019.
Walmart’s competitive cost and pricing structure
As a mass merchandiser and retailer with a large global footprint, Walmart competes with several local and international rivals in an array of segments. The company’s size can result in significant economies of scale, particularly in purchasing through better terms with suppliers.
In order to mitigate the impact of higher costs, Walmart is investing considerably in pricing via its everyday low prices (or EDLP) and everyday low costs (or EDLC) loop. According to Brett Biggs, Walmart’s chief financial officer, Walmart will invest several billion dollars into pricing in the coming years.
Walmart’s rival Costco (COST) is also looking to offer customers competitive prices. The company’s strategy consists of passing cost savings on to customers in the form of lower prices.
Due to the near-term negatives affecting Walmart’s earnings growth, the company has underperformed its rivals and the broader industry and market over the past year. WMT’s stock has provided total returns of -15.3% in the last 12 months compared to the following equities:
- -0.13% for the iShares S&P 500 ETF (IVV)
- -4.7% for the First Trust Consumer Staples AlphaDEX ETF (FXG)
- -2.3% for Dollar Tree (DLTR)
- 14.7% for Dollar General (DG)
- 3.8% for Costco
- 4.7% for Target (TGT)
However, in 2016, Walmart’s stock has returned 11.7%, higher than most of its above-mentioned competitors.
Walmart makes up 0.52% of the portfolio holdings of the iShares MSCI USA Minimum Volatility ETF (USMV).