Walmart’s been making an aggressive e-commerce push, including a major deal for a nice chunk of the massive Indian market recently, and quarterly earnings show sales up by an impressive 33 percent, but share prices are down today.
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As of 3:12pm EST, Walmart shares had lost 2.45 percent on the day, and since January, the stock is down over 20 percent.
Here’s why:
Walmart’s Q1 earnings have come in strong as e-commerce sales rebound, but profit margins still bite, continuing their quarterly decline for the fourth time in a row as price cuts and rising freight costs weigh in.
Walmart’s gross margin lost 23 basis parts in Q1 2018, and operating income in the U.S. division was down 3.1 percent from the year before. Related: Senate Votes To Protect Net Neutrality, But What’s Next?
Even though sales grew 33 percent and Walmart is expected to see a 40-percent increase in U.S. e-commerce sales for 2018, it’s not enough to ease investor concerns.
E-commerce is looking great, and Walmart said a website redesign has also resulted in a 10-20-percent increase in online grocery traffic, but will it be enough?
Edward Jones analyst Brian Yarbrough told Reuters that Walmart’s margin performance remains a potential concern when it comes to whether the company can make money “given the large investments in e-commerce”.
But this is a longer-term play, and while it might be expensive, Walmart is making bold, aggressive moves to expand and improve and continue to challenge e-commerce retail giant Amazon—even if it means putting a lot of pressure on profit margins in the short-to-medium term.
And with this in mind, Walmart’s $16-billion deal for India’s Flipkart—the country’s online retailer last week is a blockbuster.
Investors may get impatient waiting for profit margins to increase, but those who stick with Walmart are likely to benefit from its aggressive plans. After all, in India there are 1.3 billion potential customers up for grabs and now Walmart has a 77-percent stake in Flipkart, which is valued at $20 billion.
And this is a vicious battle because Amazon may also be seeking a stake in Flipkart to head Walmart off.
And now, Walmart is hoping to get another boost by targeting the most elusive group for retail: Affluent Millennials—through Jet.com, which is eyeing premium brands and products (think Apple). Jet.com, whose parent is Walmart, is planning to curate these products in a new push with Millennials in mind, and the website is very different from Walmart itself, “targeting very different demographics and audiences”, according to Walmart’s e-commerce chief executive Marc Lore.
Also on Wednesday, Walmart launched the Lord & Tayler flagship to bring 125 new premium brands to the site.
Analysts from Cowen noted that the “like Walmart’s digital intensity and innovation as well as the company’s innovative leverage of physical assets to drive multi-channel shopping …”
By Fred Dunklety for Safehaven.com
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