Source: PaxForex Premium Analytics Portal, Fundamental Insight
It's no secret that Walmart is performing admirably this year. The world's leading retailer just announced terrific growth ahead of the peak holiday shopping season and raised its earnings forecast for 2021.
But there was better news than what investors would have seen just by watching the top sales and earnings numbers. Let's take a look at some of the less significant metrics that point to good returns for shareholders.
First, it's store traffic.
Walmart's 9% increase in comparable store sales has been surprisingly solid. This surge marked acceleration in demand trends, with two-year sales growth accelerating to 15.6% from 14.5% in the previous quarter.
Looking beyond core growth, the news is even better. Walmart's growth came mostly from increased customer traffic, unlike other retailers that recently reported earnings. The chain saw a 6% increase in transactions and a 3% increase in average spending.
Grocery counters in particular stood out, with sales up 10%, as Walmart wrested market share from rivals such as Kroger. In a conference call with investors, executives said grocery sales grew at the fastest pace in six quarters. "Strong sales trends were seen in grocery stores, health and apparel stores," explained Chief Financial Officer Brett Biggs.
Secondly, we should pay attention to the return on invested capital.
Walmart's return on invested capital (ROIC) is at its highest level in years. This key performance indicator has jumped to 14.5% from 13.7% a year ago, thanks to several encouraging financial trends, including earnings growth and a decline in shares.
In fiscal 2022, Walmart increased its share repurchase spending to more than $7 billion. But the chain is also benefiting from accelerating investment in the business -- especially in its e-commerce platform.
"We're innovating in the supply chain and increasing capacity," CEO Craig Mehner said, "and creating businesses like Walmart Go Local, Walmart Connect, Walmart Luminate [and] Walmart Plus. These initiatives include bets on high-growth areas such as data services and subscription services, and in the long run, can boost sales and margins.
And finally, it's inventory levels in warehouses.
Investors were excited to hear Walmart's announcement that sales in the main U.S. market will grow about 5% over the holiday season. Such a forecast means the company will add $30 billion to its annual sales this year and will increase it in 2020.
However, the best sign of an upcoming strong Q4 is that inventories jumped 12% from a year ago. Normally such an increase would be a red flag for retailers. But in this case, it is bullish given the accelerating demand trends and supply chain challenges facing the industry.
Walmart used its unique strengths, especially its influence in retail, to fill its stores and online segment with in-demand merchandise by the end of October. Although the move reduced cash flow in the third quarter, investors should view it as a down payment in preparation for the holiday season.
And as the business becomes more efficient, shareholders should see an even greater return on sales growth in late 2021 and into the new fiscal year.
As long as the price is below 148.90, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 145.81
- Take Profit 1: 139.00
- Take Profit 2: 136.80
If the level of 148.90 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 148.90
- Take Profit 1: 152.50
- Take Profit 2: 154.70