Bets Against Walmart's Holiday Prospects Continue

Retail

Published: December 8, 2018 8:25 am

Last Updated: January 11, 2020 1:58 pm

Some of the sell-off in Walmart Inc.’s (NYSE: WMT) shares can be blamed on the recent market collapse. Ultimately, however, the primary reason to bet against the value of the world’s largest retailer is based on anticipated holiday results. While most economists believe the holiday retail season will be good, Walmart’s ongoing reliance on traditional retail outlets will continue to drag on its prospects.

Walmart’s shares are down 5.3% this year to $93.19. Ten of the 30 Dow Jones industrials are down more than Walmart. The other two large retailers in the Dow are Home Depot Inc. (NYSE: HD), which is off 8.8% to $172.79 a share for the year, and Walgreens Boots Alliance Inc. (NYSE: WBA), which is up 11.8% to $81.19.

Shares of Walmart rival Target Corp. (NYSE: TGT) are close to flat for the year at $67.81. Costco Wholesale Corp. (NASDAQ: COST), a widely regarded smaller competitor, has seen its stock rise 19.4% this year to $224.86.

For at least a decade, Walmart has been measured against e-commerce giant Amazon.com Inc. (NASDAQ: AMZN). Amazon’s shares are up 34.7% this year to $1,629.13.

Walmart’s growth continues to be very modest. In the most recently reported quarter, revenue rose to $124.9 billion from $123.2 billion in the same quarter the year before. Net income was $1.7 billion, roughly flat year over year. As the company looks ahead, management expects U.S. same-store sales to grow at least 3%. While the number is encouraging based on the recent past, it is still too modest to make the company’s traditional retail channel a reason to think Walmart has cut loose from the gravity of the sector’s problems.

As for e-commerce, Walmart’s says it is growing rapidly. However, it still does not count for more than a few percentage points of Walmart’s overall revenue.

Walmart’s near-term prospects are okay, but many investors don’t think that is close to adequate.

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