Walmart is greeting wealthier shoppers these days
Does that make it a buy after solid Q3 FY23 earnings?
The Walmart parking lot was absolutely packed.
Too packed, I thought. Something was up, but I didn’t know what.
I had to creep down not one, but two rows before I finally tucked the Honda Civic into a spot that had to be at least 75-100 yards away from the friendly face waiting to greet me at the front door.
With a Tesla to my left and a Maserati to my right, I felt like I’d made it. We might drive different cars, but hey, we still pick up shaving cream and toilet paper from the same place. My trek toward the Walmart greeter had a few other solid sights and sounds — a Dan’s Deli food truck grilling Italian sausages provided a nice distraction before a guy in a Lamborghini almost backed into my left hip — but I made it to the door unscathed.
Then, after passing a shelf loaded with giant bags of unsold Halloween candy, selling for $25 when they used to be $10, it hit me. Between the cars, the crowd and the candy, the answer to my initial question was staring me in the face.
Inflation. That’s what’s up. That’s why all the rich people are at Walmart.
The rich are making Walmart richer
Walmart, once considered a discount retailer catering to low- to middle-class shoppers, is seeing a surge in upper-class clientele. With food prices up 10.9% in October, wealthier shoppers are heading to Walmart.
I made up the first part of this post to further hammer home the point, but you can’t make up earnings numbers.
Walmart announced earnings per share of $1.50 (adjusted) vs. $1.32 (expected) in Q3 FY23 earnings.
Walmart announced revenue of $152.81 billion vs. $147.75 billion (expected).
The earnings beat stemmed from a strong back-to-school season, Walmart CEO Doug McMillon said, along with The Big Billion Days, which is an annual event for Flipkart, which Walmart owns.
Online sales provided a boost as well, up 16% year over year in the U.S. Oh, and then there are the rich people lining up to save some money at the Walmart tire center or Walmart pharmacy.
“Pocketbooks are stretched. People have less discretionary income or less disposable income to spend on things — and they’re looking for value,” Walmart Chief Financial Officer John David Rainey said on a call with CNBC.
Ya think? Just look at the wealth destruction we’ve seen so far this year. Equities are down, crypto is down, and real estate is down. Trillions of dollars have been destroyed.
Rainey went on to shed a little more light on the type of consumers Walmart greeters are ushering into the stores these days, saying about 75% of the company’s market share gains in food came from households that make more than $100,000 a year. It’s the second straight quarter, according to Rainey, that’s been the case.
So, is Walmart a buy?
I’d argue it is. Market participants clearly think so as the stock price popped nearly 9% on the earnings news. If you’re looking for a steady ship through this economic storm, which is becoming increasingly treacherous, Walmart has a ton of momentum right now. Earnings have looked good for a couple of quarters in a row and the consumer is continuing to get stretched from high inflation. It’s almost like a perfect storm for Walmart, which is looking more and more like a great place to hide out until economic conditions turn around.
It’s also a great dividend-growth stock. Walmart has raised its dividend for 48 straight years, most recently at a modest 1.93% annualized clip over the course of the last five.
If you have a long time horizon, considering its ability to perform in a variety of economic conditions and the commitment to the dividend, Walmart makes sense here.
There are always risks. The war in Ukraine and the mess it’s creating all across Europe can’t be ignored. If something drastic happened over there it would certainly ripple through the U.S. stock market and equities like Walmart stock. Walmart is a U.S. story, though, at least right now. More and more consumers are turning to Walmart for things they have to buy no matter what — things like groceries and household essentials. That’s a tailwind for Walmart no matter how you look at it.
Disclaimer: I’m a market participant, not a financial advisor. This is not financial advice.
