Wal-Mart Stores, Inc. (WMT) recently released earnings for its Q1 2016 fiscal year. And it looks like things are actually turning around for Walmart stock.
That isn’t to say these were blockbuster numbers, but the fact that they came in better than Macy’s, Inc. (M), J C Penney Company Inc (JCP), Sears Holdings Corp (SHLD) and Target Corporation (TGT) is certainly movement in the right direction.
There are two main takeaways from its recent earnings:
- Consumers are still willing to buy, but they’re continuing to be price sensitive. That is showing up in the growing comparable store (stores that have been open for more than 12 months) sales. Comps were up 1%, which exceeded Wall Street’s expectations.
- WMT’s restructuring is gaining traction. Walmart has raised the wages of many of its workers and has rededicated itself to online sales. They both seem to be making quantitative and qualitative differences with shoppers.
Because of the strong dollar, overseas operations are still uninspiring. But if the dollar continues to weaken or the yen and euro start to rise, this situation may right itself on its own. International sales were up for the quarter versus a year ago by 4%, but because of exchange rates, net sales were down 7%.
Its online sales were the most impressive part of the earnings statement. Online revenue was up 7% versus the same quarter last year. This is going to be a very important growth area for Walmart stock because there are higher margins online and that will help fill the profit gap that was created when the company boosted wages for many of its workers.
The Risks Are Paying Off for Walmart Stock
WMT took big strategic gambles to stay competitive. Many analysts were wondering if they were the last-ditch efforts of the big discount retailer or the course correction that had been needed for quite some time.
It’s now looking more like the latter than the former. Walmart closed a number of stores, boosted wages and put some of those cost savings into its online operations.
WMT is in competition with Amazon.com, Inc. (AMZN) more than it is with Dollar General Corp. (DG). DG is a one-trick pony with relatively small operations in small-town America. Walmart is becoming a diversified company that is growing its online retail as well as its food business.
Plus, DG’s strategy is essentially ‘grow or die’. If it stops opening stores, the Street will kill it. WMT is simply diversifying its business and creating a better experience. Growth for its existing stores is growing and Walmart expects that trend to continue. Its online sales and its urban grocery stores will be the thing to watch in coming quarters.
The fact is Walmart stock is a bargain here, especially with its strong dividend that sits at 2.8% currently. The stock is up 15% year to date, but it still has plenty of upside left in coming quarters.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.