Walmart Posts Best Month Since 2014 as Discount Rivals Slump
(Bloomberg) -- August was a blowout month for Walmart Inc. — and a disastrous one for some of its discount-chain competitors — as consumers rein in spending.
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Shares of the Bentonville, Arkansas-based retailer surged about 13% in August, notching their best month since November 2014 and adding roughly $69 billion to the company’s market capitalization. A stronger-than-expected second-quarter earnings report fueled by price-conscious shoppers drove the advance.
Walmart has managed to lure more bargain-hunters, especially wealthier ones, as consumers grapple with high borrowing costs and evaporating pandemic savings. But selective consumers paired with Walmart’s inroads in e-commerce have left rival discounters struggling to meet their targets, something Dollar General Corp.’s chief executive officer was forced to acknowledge during the company’s earnings call.
“The guys down in Bentonville are doing a pretty nice job in garnering the available traffic that’s out there from other retailers,” Todd Vasos, the dollar store CEO told analysts Thursday. Shares plunged by a record 32% after the company cut its full-year sales forecast following weak quarterly results. Dollar Tree Inc., which reports next week, tumbled 10% in sympathy.
It wasn’t just dollar stores struggling this month. Off-price home goods retailer Big Lots Inc. shares tanked after Bloomberg reported it’s contemplating a potential bankruptcy filing.
That leaves Walmart among a select group of retailers that have managed to impress Wall Street this earnings season. Last week, Target Corp. notched its best day since March after lower prices on essential goods helped drive quarterly comparable sales above analysts’ projections. Shares in off-price retailers TJX Cos. and Ross Stores Inc. also rose after the companies posted better-than-expected results.
“People want to save money, but stores need to be well run,” said Ed Cofrancesco, chief executive officer of International Assets Advisory, which has about $5 billion in assets under management. “We’ve been touting Walmart for a while,” he said, noting that he started adding to his Walmart position six months ago amid signs the economy was slowing down.
With retailers like Walmart expanding their digital and brick-and-mortar offerings, dollar stores have “somewhat lost their appeal for value and convenience,” according to CFRA analyst Arun Sundaram. A company like Walmart also has more levers to pull to keep prices low as higher-margin revenue streams like advertising can subsidize price cuts, he said. Sundaram downgraded his Dollar General rating to hold from buy on Thursday.
Walmart’s found the sweet spot with belt-tightening consumers as the lowest cost provider in the retail space, according to Michael O’Rourke, chief market strategist at JonesTrading.
“You are seeing consumer weakness out there in a number of different retailers or consumer brands,” he said. “People who want to keep their exposure to the stock market are going to go to the Walmarts of the world that are executing.”
One sticking point for some on Wall Street is Walmart’s valuation, which at nearly 30 times forward earnings is well above the average for the S&P 500 Consumer Staples Index and peers like Target.
“It’s been consistent, but you’re also paying a premium for that,” O’Rourke said.
(Updates share-price moves, valuation details and charts.)
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