Walmart (NYSE:WMT) reports its first-quarter earnings May 16 and good news is predicted. The world’s largest retailer is expecting revenue of $125.24 billion and earnings of $1.02 per share, with $1.05 per share hoped for. That would be about 20% more income on just 3% more revenue, compared with 2018.
But Walmart has been hyping this growth for such a long time that it’s already baked into the stock, which is up over 19% over the last year. Walmart opened for trade May 13 at about $100 per share, with a forward price-to-earnings ratio of 20 and a dividend yielding just 2.05%.
The last is key. Despite its claims of “beating” Amazon (NASDAQ:AMZN), its great white whale, Walmart remains a slow-growing retailer valuable mainly for its yield, which has been declining for years. The current dividend is just 4 cents per share higher than it was 5 years ago.
Is Walmart Stock a Tech Stock?
Under Doug McMillon, now in his fifth year as CEO, Walmart has billed itself to Wall Street as a technology company.
Walmart has tried many things in technology. It built a Silicon Valley skunk works, Walmart Labs, then bought Jet in 2016. Today it has a tech-driven market on Long Island for “immersive shopping.” It’s pushing curbside pick-up of online orders. It’s promising one-day free shipping to nearby addresses, integrating the online and offline experience in ways Amazon’s Whole Foods can only dream of. It’s turning its Vudu streaming service into a subliminal shopping network for its products.
Walmart is also adapting technology inside its stores. It’s using digital watermarks to assure freshness on fresh food. It’s using robots for clean-up and inventory.
But none of this moves the financial needle. Walmart sales in fiscal 2019 were just 7% higher than in 2016. Net income declined by more than half, due to all those investments. Walmart has been running hard to stay in place.
The Control Point
What may work better are Walmart’s efforts to gain greater control of its supply chain.
Sen. Elizabeth Warren loves to rail against Amazon’s store brands crushing competitors, but Walmart really does it. Since Walmart decided a year ago to produce its own milk from its own dairy herds, Dean Foods (NYSE:DF), which had been supplying that milk, has lost 80% of its value.
Walmart is now talking about building its own meat herds, a network of ranches and processing plants that should have Tyson Foods (NYSE:TSN) executives shaking in their patent-leather shoes.
Walmart’s cannibalization goes beyond fresh food. Seeing the success of Petsmart and its Chewy spin-off, Walmart is expanding its line of veterinary clinics and store-branded pet supplies. As service becomes a bigger part of retail, Walmart moves in, and no one complains.
Here is the real difference between Amazon and Walmart. While 58% of what Amazon sells comes from outside merchants, Walmart controls its supply chain. Walmart gets a bigger profit push from that than from technology.
Walmart has a host of store brands throughout its store and regularly creates more. These brands give it control over even the notoriously fickle clothing supply chain, which is moving from China to other locations in Southeast Asia.
The Bottom Line
Walmart may be the world’s smartest retailer. It is on top of demographic trends. It can deal with tight or loose labor markets. It has sound controls over its retail distribution and is gaining control over its supply chain.
Analysts think that for fiscal 2021, which starts next February, Walmart could bring in earnings of $5 per share. That’s what half of them are basing buy recommendations on. It’s a price-to-earnings multiple of 20 at Walmart’s current stock price.
Unless a big hunk of that comes back as dividends, however, you don’t want it. Because that’s still why you buy the stock.
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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
