Many people believe America is on the verge of a recession. Consequently, many investors will wonder will America’s biggest discounter Walmart (WMT) will profit.
Walmart (NYSE: WMT) could profit from a recession because of its famous low prices. Interestingly, Walmart is slashing prices to help shoppers adjust to inflation, Business Insider reports. Additionally, Walmart will offer lower-cost alternatives to some items to help inflation.
However, Walmart will have to raise food prices because of inflation, Chief Financial Officer Brett Briggs admits. Briggs says Walmart will cut sporting goods and hardware prices to maintain sales.
Walmart will try to keep prices low on “price-point items,” such as milk, tuna, and bread, CEO Doug McMillon promised in May. To explain, “price point” items are staples families buy in any economy.
Can Walmart Grow in a Recession?
Interestingly, revenue growth shows McMillon and Briggs’ strategy is working. Stockrow estimates Walmart’s revenue growth rate rose from 2.36% in the quarter ending on 30 April 2022 to 8.37% in the quarter ending on 31 July 2022. Conversely, Walmart’s revenues grew by just 0.52% in the quarter ending on 31 January 2022.
Walmart’s quarterly revenues grew from $141.469 billion on 30 April 2022 to $152.859 billion on 31 July 2022. I calculate Walmart’s revenues grew by $11.29 billion in the last quarter. So yes, Walmart is growing in a recession.
Walmart Inc. (WMT) is making more money. The quarterly gross profit grew from $34.772 billion on 30 April 2022 to $37.021 billion on 31 July 2022. However, the quarterly revenues fell from $37.349 billion on 31 January 2022.
In contrast, the quarterly operating income grew from $5.318 billion on 30 April 2022 to $6.854 billion on 31 July 2022. However, the quarterly operating income fell from $7.354 billion on 31 July 2021 and $5.887 billion on 31 January 2022.
I conclude people are shopping more at Walmart but spending less money. To elaborate, people are buying groceries at cleaning supplies at Walmart because of rising inflation. Conversely, people making fewer purchases of big ticket goods such as TV sets out of inflation fears.
How Much Cash is Walmart (WMT) generating?
Walmart (WMT) can generate enormous amounts of cash. For example, it reported a quarterly operating cash floor of $12.988 billion on 31 July 2022.
The quarterly operating cash flow rose from -$3.758 billion on 30 April 2022 and $7.98 billion on 31 January 2022. However, Walmart borrowed $5.315 billion of that cash. Walmart reported a $5.315 billion quarterly financing cash flow on 30 April 2022.
The quarterly financing cash flow fell to -$6.715 billion on 31 July 2022. Hence, Walmart could generate $12.988 billion in cash and pay $6.715 billion in debt in a quarter. Conversely, Walmart’s quarterly ending cash flow fell from $11.882 billion on 30 April 2022 to $2.108 billion on 31 July 2022.
Walmart had $13.923 billion in cash and short-term investments on 31 July 2022. The cash and short-term investments rose from $11.817 billion on 30 April 2022 and fell from $22.831 billion on 31 July 2021.
What Value Does Walmart Offer?
I think Walmart (WMT) offers tremendous value because it generates cash and adds value in a recession. However, Walmart has lost some value.
For example, Walmart’s Total Assets grew from $246.142 billion on 30 April 2022 to $247.199 billion on 31 July 2022. The total assets grew from $238.552 billion on 31 July 2021.
Moreover, Walmart’s total debt fell from $66.917 billion on 30 April 2022 to $65.309 billion on 31 July 2022. However, the total debt grew from $57.323 billion on 31 January 2022 and $60.879 billion on 31 July 2021.
Thus, Walmart is paying debts, adding value, and accumulating cash in a recession. Hence, I consider Walmart a value investment that can grow in a recession.
Is Walmart a Value Investment?
Appealingly, Walmart’s stock price has fallen. Mr. Market paid $147.70 for WMT on 30 August 2021 and $132.55 for Walmart on 31 August 2022. I think Mr. Market underprices Walmart, which makes it a value in today’s stock market.
Walmart’s value characteristics include a wonderful dividend. Walmart has scheduled eight 56₵ quarterly dividends between 6 September 2022 and 3 July 2024. Walmart shares paid a $2.24 forward dividend and a 1.69% forward dividend on 31 August 2022.
If you need a value stock that can grow and generate dividend income during the recession. I recommend Walmart (NYSE: WMT). So, yes, Walmart is a value investment I consider a widow and orphans stock.
What Value Does Walmart Offer?
Walmart’s value includes 4,742 stores and 210 distribution centers in the United States. Statista estimates Walmart operated 370 discount stores, 799 Neighborhood Markets, and 3,573 Supercenters on 27 July 2022.
Hence, Walmart (WMT) has one of the largest retail footprints in the United States. Moreover, Walmart claims it has stores located within 10 miles of 90% of the US population.
If that’s true, Walmart operates stores within 10 miles of 301.769 million Americas. To explain, WorldoMeter estimates the USA had a population of 335.241 million in August 2022 and 90% of 335.241 million is 301.769 million.
Additionally, Walmart is a major player in e-commerce. Walmart operated 31 dedicated e-commerce fulfillment centers in the US on 3 July 2022. Moreover, Walmart plans to build four next generation fulfillment centers over the next three years, a press release reveals.
Walmart Ramps Up E-Commerce
Walmart is partnering with Austrian logistics automation company Knapp to automate those fulfillment centers. Knapp’s system uses robots, hard automation, and machine learning to speed up the fulfillment process.
Walmart claims Knapp’s system can reduce the fulfillment process from 12 steps to five steps. In particular, they claim the Knapp system can pick and pack items for shipment in under 30 minutes.
They have been testing the Knapp technology at a Pedricktown, New Jersey, fulfillment center. Walmart hopes to open first new fulfillment center at Joliet, Illinois, this summer.
Furthermore, they claim the Knapp process can double the number of orders a fulfillment center can fill in a day. Plus, Walmart claims the new fulfillment centers could reach 75% of the US population with one or two-day shipping. Walmart also claims it could reach 95% of the US population with one or two-day shipping if they combine new old and fulfillment centers.
Walmart E-commerce is Growing
Hence, Walmart (WMT) can cash in on expensive gas and inflation with a growing e-commerce fulfillment system. Statista estimates Walmart is America’s second-largest retail e-commerce company with 6.3% of the US market in June 2022. In contrast, the largest US e-commerce company had 37.8% of the US market in June 2022.
Walmart’s online sales grew by 11% in fiscal 2022 and 1% in the quarter ending on 31 July 2022, Supermarket News reports. Walmart’s online sales grew by 90% between fiscal 2020 and the end of fiscal 2022 (July 2022), Supermarket News claims.
How Inflation can Help Walmart Grow
Hence, Walmart’s e-commerce is growing and poised to grow more. I think Walmart’s e-commerce will grow if inflation gets worse and recession comes.
America’s inflation rate rose from 5.25% in August 2021 to 8.52% in July 2022, Statista estimates. Although inflation fell slightly from 9.06% in June 2022.
I think inflation could rise because Federal Reserve Chair Jerome Powell thinks higher inflation and interest raise increases are probable. Powell said the Fed will need to keep raising interest rates to fight inflation for the next few months at a 26 August conference in Jackson Hole, Wyoming, NPR reports.
Hence, Powell fears inflation will keep rising, which can be good for Walmart (WMT). To explain as inflation rises, families will need to cut costs, which means more visits to Walmart stores and Walmart.com.
If you want a dividend-paying value stock that could grow with inflation. I think you need to investigate Walmart Stores Inc. (NYSE: WMT).
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