Earnings Outlook: Walmart preview: With inflation a top concern, Walmart is closing the price gap with Amazon
Amazon.com Inc. may have held on to its price leadership in the latest E-commerce Price Index from Profitero, but Walmart Inc. is closing the gap.
Profitero compared the online prices for 15,530 items in 15 categories at a dozen retailers over a 12-week period from July 12, 2021 through Oct. 3, 2021. Among the categories analyzed were appliances, fashion, food and beverage, toys, and vitamins and supplements.
In addition to these two retail giants, Best Buy Co. Inc.
Home Depot Inc.
and Macy’s Inc.
were among the retailers included in the analysis. This is the fifth year that the e-commerce analytics company has compiled the index.
“Amazon is in a good position as the online price leader heading into the 2021 holiday shopping season — just not quite as good as a year ago,” the Profitero report says.
“While Amazon beats other major retailers on price by 14%, on average, this is down from 16% last year, according to our latest pricing data.”
is gaining ground in 10 out of 15 categories, and prices were within 5% or less in 13 categories.
“The fiercest Walmart vs. Amazon battles, however, are in six categories where Walmart’s online prices are, on average, within 1%-to-2% of Amazon: appliances, beauty, food & bev, health & personal care, home furniture, and sports & outdoors,” according to the report.
“Food & bev, in particular, is one to watch — with Walmart closing the price gap
from 2% in 2020 to just 1% in 2021.”
In “key holiday” categories like video games and electronics, Amazon
still takes the top spot.
But one company has matched Amazon on price this year: Chewy Inc.
in the pet category.
“What’s impressive is that Chewy is able to offer these everyday low prices while investing a lot in customer service and unique personal touches — such as handwritten notes for pet parents,” the report said.
The Profitero price index was released as inflation is driving up prices in time for the holidays. Government numbers announced Wednesday show that inflation has reached a 31-year high, with the consumer price index jumping 0.9% in October.
The index was also released ahead of Walmart’s third-quarter earnings, which are scheduled for next Tuesday before the opening bell.
Heading into earnings, Walmart has an average overweight analyst rating and average price target of $169.96, according to 35 analysts polled by FactSet.
Here’s what else to watch for when Walmart reports:
Earnings: The FactSet consensus is for earnings per share of $1.40, up from $1.34 last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, has an outlook of $1.49.
Walmart has beat the FactSet EPS consensus the last two quarters.
Revenue: The FactSet consensus is for revenue of $135.31 billion, up from $134.70 billion last year.
Estimize is guiding for revenue of $137.73 billion.
Walmart has beaten the FactSet revenue consensus the last six quarters.
Stock price: Walmart stock is up 3.3% for the year to date, but has slipped 0.8% over the last three months.
The Dow Jones Industrial Average
has run up 17.7% for 2021 so far.
Walmart likely gained market share. “We think its EDLP [every day low prices] strategy probably attracted incremental shopper spend, especially relative to traditional grocers who likely passed on more inflation to consumers than Walmart,” wrote UBS in a note.
“On the digital side, Walmart likely saw relatively modest growth in 3Q.”
UBS also thinks that Walmart will show that it’s handling the global supply chain disruptions better than most.
Walmart is one of the large retailers with the resources to charter its own ships to bypass the bottlenecks at ports and in other parts of the supply chain network.
UBS rates Walmart stock buy with a $180 price target.
Walmart holiday deals include membership incentives. Walmart has started launching its “Black Friday Deals for Days” events, and MKM Partners noticed that there are incentives for Walmart+ members.
“The deals, combined with the ability to avoid Black Friday chaos associated with big box retailers, should be a strong incentive for increased membership,” analysts said.
“We have long believed that Amazon relies on an offline presence such as Whole Foods stores to recruit/retain Prime members. This membership incentive from Walmart is similar but more dramatic.”
MKM rates Walmart stock at neutral with a $156 fair value estimate.
Walmart is headed to the cloud. KeyBanc Capital Markets spoke with Walmart’s Chief Technology Officer Suresh Kumar at the end of October about the retail giant’s migration to cloud technology, a move that analysts say can benefit growth and margins.
“Walmart needs to continue to migrate data to the cloud to allow for advanced data analytics, which should allow for more personalized consumer experiences at scale,” KeyBanc wrote.
“Walmart data includes both in-store and online, and an example of personalization includes the ‘predictive basket,’ which can create quick add-on experiences for customers while shopping for habitual items such as groceries.”
KeyBanc also sees opportunities to improve customer experience in voice technology and other digital innovations. And Walmart uses blockchain for safety and product tracing.
KeyBanc rates Walmart stock at overweight with a $180 price target.
Traffic is returning to Walmart stores. The latest Placer data shows that traffic to Walmart stores slowed as COVID cases rose and back-to-school shopping ended. But traffic is on the rise again, boosted by the retailer’s ability to “manufacture demand” through promotional events.
“There is also the added opportunity that comes from their wide focus on everything from apparel and toys to food and beverages,” Placer’s Ethan Chernofsky wrote in a blog post.
“The approach enables them to not only attract traffic intended for holiday gift shopping, but also for preparation for Thanksgiving and Christmas gatherings. And when that traffic does arrive, the ‘one stop shop’ experience creates an ongoing and significant upsell opportunity.”