Walmart (NYSE:WMT) is still the world’s largest retailer, by a wide margin, but it wants investors to see it as finally beating Amazon (NASDAQ:AMZN). Walmart stock earnings were last week, and while the numbers were good, the narrative was definitely constructed so that WMT investors came away with the impression management wanted.
Walmart reported net income of $3.8 billion, $1.33 per fully diluted share, on revenue of $123 billion for the quarter ending in April. But the number it wanted investors to see was 37%. That’s how much its “eCommerce” efforts were ahead of last year.
Instead of looking at the 11 cent per share beat on earnings investors might want to look instead at 3.4%. That’s how much same store sales rose over the previous year. Bears might look at 1.1%. That’s how much Walmart’s total sales grew, as international sales declined and those at Sam’s Club barely moved. Revenue was short of analyst estimates.
The point Walmart wants to make is that its effort to overtake Amazon is succeeding.
But is it?
When you drive to Walmart and a clerk brings your online order to the car, Walmart counts that as eCommerce. Fewer than half its stores today are doing grocery delivery.
What Walmart is trying to do is generate headlines like this, claiming it’s beating Amazon. Amazon stock is three times more valuable than Walmart stock despite having half Walmart’s sales.
The fact is Walmart is moving its own sales from in stores to electronic orders. It is not grabbing market share from Amazon. Walmart is grabbing market share from Walmart. You can’t have a 37% increase in eCommerce and only 3.4% comps unless most of your eCommerce sales were your own sales to begin with.
While Walmart focuses on Amazon, it’s still getting killed by Costco Wholesale (NASDAQ:COST), which keeps grabbing share from Sam’s Club. Walmart is also losing urban market share to Aldi, the no-frills German chain that rents shopping carts, has wafer-thin margins and only stocks store brands.
Still Not Amazon
But Walmart remains a chain of big box retail stores. In many areas it’s the replacement for downtown, and that means downtown problems, like using up public resources. Walmart also employs 1.5 million Americans, who continue to agitate publicly for better treatment.
That decline in international business, by the way, includes India, where Walmart put $16 billion into Indian e-tailer Flipkart and has yet to see a return.
While over half of Amazon’s online sales are on behalf of third parties, meaning it takes no inventory risk, Walmart is still buying its merchandise directly, making it far more vulnerable to rising prices from China tariffs than Amazon is.
The Bottom Line for Walmart Stock
Walmart stock has been fighting to hold $100 per share since April and had a market cap of $290 billion as of this writing. While WMT shares are up 8.7% so far in 2019, shares of Amazon are up 23.5%.
When Walmart raises prices, as it will need to due to the trade war, its revenues will increase because Walmart shoppers will be paying tariffs. But that doesn’t mean Walmart earnings will increase.
The most important takeaway is that Walmart is not Amazon. Half its sales are from groceries. The rivals it should be focused on are Aldi, Costco and Kroger (NYSE:KR), whose stock was recently upgraded.
Since becoming CEO in February 2014, Doug McMillon has delivered a 35% gain in the stock while increasing the dividend just 4 cents per share. That’s behind the 53% average gain in the S&P 500.
Yes, Walmart is moving its sales online, but that doesn’t mean it’s taking down Amazon.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.