At one point in time, Walmart (NYSE:WMT) was a traditional brick-and-mortar retailer struggling against the face of shifting consumption trends and rising e-commerce competition. That was back in 2015. Four years later, the narrative has completely changed.
Walmart has adapted. They’ve built out a robust e-commerce business that is bested only by Amazon (NASDAQ:AMZN). They’ve concurrently broadened their omni-channel capabilities, increased their in-store product assortment, and enhanced checkout processes. Moreover, WMT improved their logistics and dabbled in digital ads, to name but a few endeavors. As a result, Walmart stock has risen 70% since the end of 2015.
This dynamic will persist. Walmart continues to adapt and innovate to create a distinguished, all-in-one retail experience that is second-to-none in terms of price and convenience. Their latest move? An expanded pivot into the pet’s category, where Walmart is already king. Still, the big-box retailer has a ton of potential to become an even more dominant player.
All in all, Walmart simply continues to improve its retail operations every day. Consumers are responding by shopping more and more at Walmart. The outcome? Big sales growth, healthy margin stabilization, and steady profit growth. Ultimately, that combination will continue to propel WMT stock higher for the foreseeable future.
The Pets’ Pivot Is a Smart Move
In its most recent move, Walmart is more aggressively expanding into the pet-care category. Specifically, the company is doing three things: doubling down on expanding fresh pet-food selection and inventory, expanding its in-store veterinary clinic base by five-fold, and launching an online pet pharmacy.
This is a genius expansion. Broadly, because consumers have increasingly fallen in love with taking care of their pets, the pet care category has turned into a growth segment. U.S. pet care sales have grown at a 5% annualized rate since 2010, and a 6% annualized rate since 2016. Meanwhile, total U.S. retail sales have grown at just a 4% rate during both those stretches.
Naturally, that dynamic makes the pet-care market an attractive one for Walmart.
Walmart already has nearly 20% market share in the brick-and-mortar pet product market. But, nearly two-thirds of all pet-owning households in the U.S. already do some type of shopping at Walmart, giving it the largest pet-owning shopper base in the U.S. Thus, through creating a more robust pet care offering, Walmart can significantly expand its market share in the pet-care category.
Further, Walmart has a limited presence in this segment right now. Yet, that’s where all the growth is happening. Physical retail sales of pet food represented between 0% and 2% in 2018, depending on the channel. E-commerce pet-food sales rose over 50%.
All in all, this pet pivot is a smart move from Walmart. Because almost everyone already shops at Walmart, the retailer has a unique and tremendous opportunity to scale up wallet share of dog-owning households who already do a portion of their shopping at Walmart. Pet care is a near $80 billion industry, so scaling up market share by even just 10 points would translate into an $8 billion sales boost.
Walmart Stock Has Healthy Upside
The pet pivot is just one of many innovative moves that Walmart has made over the past several years to boost the value prop of its retail operations. The sum of all these moves has sparked consistently positive comparable sales and traffic growth, margin stabilization, and healthy profit growth. In turn, that has led to Walmart stock gaining 70% since the end of 2015.
This dynamic should largely persist for the foreseeable future. Today, it’s an expansion into pet care. Tomorrow, it’s a more aggressive digital-ad rollout. The next day, it’s making same-day delivery the norm. So on and so forth.
In other words, this isn’t the end of the Walmart growth narrative. We are somewhere in the middle few innings of this company turning into a modern-growth retailer. So long as this transition persists, Walmart stock will remain on an uptrend.
Where do the numbers put WMT stock today? Around $110 by the end of this fiscal year. Thus, dips towards and below $100 should be seen as buying opportunities.
Bottom Line on WMT Stock
The Walmart of 2019 is nothing like the Walmart of 2015, and that’s a good thing. The Walmart of 2019 is constantly innovating and improving itself to become the world’s best retailer with the lowest prices and highest convenience. So long as this remains true (and it does today with the huge pet-care expansion), Walmart stock will remain on a winning trajectory.
As of this writing, Luke Lango was long WMT and AMZN.
