Specifically, former Walmart CEO Bill Simon thinks torrents of terrible news will discourage new consumer purchases. “For the first time in a long time, there’s a reason for the consumer to pause (spending),” Simon tells CNBC. Simon thinks inflation fears, rising interest rates, the federal budget crisis, student loan repayments, and labor unrest could derail consumer spending.
Conversely, the latest financial data from Simon’s former employer, Walmart, casts serious doubt upon this thesis. Walmart’s revenues, gross profit, and income are growing despite wave after wave of terrible news.
Walmart Grows and Grows
For example, Walmart’s quarterly gross profit grew from 37.021 billion on 31 July 2022 to $39.782 billion on 31 July 2023. Similarly, Walmart’s quarterly revenues grew from $152.859 billion on 31 July 2022 to $161.632 billion on 31 July 2023.
Meanwhile, Walmart’s quarterly operating income grew from $6.854 billion on 31 July 2022 to $7.316 billion on 31 July 2023. Plus, Walmart’s quarterly operating cash flow grew from $12.998 on 31 July 2022 to $13.568 billion on 31 July 2023. The quarterly ending cash flow grew from $2.108 billion on 31 July 2022 to $3.263 billion on 31 July 2023.
Yet Walmart’s cash and short-term investments fell slightly from $13.923 billion on 31 July 2022 to $13.888 billion on 31 July 2023. Thus, Walmart has less cash. For example, Walmart’s quarterly ending cash flow fell from $11.822 billion on 30 April 2022 to $10.708 billion on 30 April 2023.
Walmart’s assets grew from $247.199 billion on 31 July 2022 to $255.121 billion on 31 July 2023. Conversely, Walmart’s total debt fell from $50.171 billion on 31 July 2022 to $49.698 billion on 31 July 2023.
Why Does Walmart (WMT) have less cash?
So why does Walmart have more revenue, gross profits, assets, and income but less cash? I think Walmart’s vast footprint creates high operating costs that eat cash.
For example, Walmart operated 4,717 stores in the United States in 2023, Statista estimates. In detail, Walmart operated 3,572 supercenters, 781 Neighborhood Markets, and 364 discount stores in 2023. Walmart’s footprint is shrinking. It operated 4,742 US stores in 2022.
Walmart also operates 31 ecommerce fulfillment centers and 210 distribution centers in the United States. To operate those stores and centers, Walmart employed 1.2 million people in the United States.
Walmart’s operating costs are rising. For example, labor shortages forced Walmart to raise its minimum wage from $12 an hour to $14 an hour in 2021, CNBC reports. Moreover, Walmart has to pay a starting wage of $19 an hour in some markets.
Why Walmart (WMT) Fears Unions
Hence, rising wages eat the revenues Walmart earns from rising sales. I predict this trend will continue as Walmart raises wages to avoid labor unrest.
Like their peers at Amazon (AMZN), Walmart’s executives fear unions. News stories about the successful UPS (UPS) and Screen Writers’ strikes will drive interest in unionization. Particularly, if union leaders can deliver enormous wage increases.
Moreover, I think the changing retail business. The move from stores to ecommerce and fulfillment centers makes retailers more vulnerable to unionization. For example, there is just one fulfillment center for a strike to shut down instead of many stores.
Furthermore, ecommerce relies heavily upon delivery drivers, which is a tremendous opportunity for the Teamster’s Union. For example, the UPS will raise part-time workers’ wages by 48% over the next five years to avoid a strike. Moreover, some UPS drivers will earn up to $49 an hour under a new agreement, a Teamsters’ press release claims.
News stories about the Teamsters’ UPS contract will drive more interest in the union and offer more incentives to strike. The best way for Walmart to avoid strikes is to raise wages and benefits before the Teamsters’ organizers show up.
The ultimate fear at Walmart headquarters is that the company will have to raise prices to cover rising wages. Hence, Walmart (WMT) could become less competitive with rival discounters such as Amazon (AMZN) and Costco (COST).
Is Walmart (WMT) Fairly Priced?
I think Mr. Market fairly priced Walmart (NYSE: WMT) at $158.96 on 12 October 2023. Moreover, Walmart’s share value is growing. Mr. Market paid $132.28 for Walmart on 12 October 2022.
I think Walmart’s price is rising because investors view it is a safe retailer. To explain, investors think most brick-and-mortar retailers are dying. However, Walmart is growing, despite the rise of Amazon. Hence, people view Walmart as a safe stock.
A 57₵ quarterly dividend adds to Walmart’s attraction. Furthermore, Walmart has scheduled nine 57₵ quarterly dividends between 21 February 2024 and 17 February 2025. Overall, Walmart (WMT) shares offered a $2.28 forward dividend and a 1.43% dividend yield on 12 October 2023.
In the final analysis, I consider Walmart an attractive value investment in retail. I predict Walmart will keep growing and paying dividends even if the economy gets worse. To explain, a weak economy helps discounters like Walmart because more people are penny pinching.