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Investment Overview for Wal-Mart (NYSE:WMT)
Below are key drivers of Wal-Mart's value that present opportunities for upside or downside to the current Trefis price estimate for Wal-Mart:
- US Revenue per Square Foot: We estimate that the average annual revenue per square foot for U.S. Wal-Mart stores stood at about $436 in 2012. We forecast this figure to witness moderate increase in coming years. However, there could be an upside of close to 5% to our price estimate if this figure increases to around $530 by the end of our forecast period. On the contrary, there could be a 5% downside if this figure only increases to $450 by the end of our forecast period.
US Number of Stores: We estimate the number of Wal-Mart stores in the U.S. will grow from about 4,005 in 2012 to about 4,210 by the end of our forecast period. There can be downside of approximately 5% to our price estimate if store count remains stable at the current levels due to self cannibalization risks. However, if the retailer aggressively expands its smaller format Express stores taking the store count to 4,600, there can be 5% upside to our price estimate.
U.S. Gross Margins: We estimate that this figure will stay around the current levels of approximately 26.5%. There could be downside of about 5% to our price estimate if rising input costs lead to a decline in margins to about 24% by the end of our forecast period.On the contrary, the retailer keeps leveraging its huge buying power to get discounts from vendors, and margins reach 28%, there can be 5% upside to our price estimate.
- International Revenue per Square Foot: We estimate that the average annual revenue per square foot for international Wal-Mart stores will increase over the coming years and reach $480 by the end of the Trefis forecast period. There can be downside of approximately 5% to our price estimate if this figure only increases to $430.
- Number of Stores Internationally: We estimate that the international Wal-Mart stores will increase from about 6,158 in 2012 to about 8,350 by the end of our forecast period. There can be 5% downside to our price estimate if the growth rate was to slow down such that the international store count reaches only about 7,500 by the end of our forecast period. There can be upside of about 5% if this figure was to increase to 9,500 instead during the forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Wal-Mart at the top of the page.
Wal-Mart continues to be the largest retailer in the world with reported revenues of approximately $469 billion for fiscal year ending January 2013. It has over 10,000 stores worldwide.
Wal-Mart sells goods across almost all merchandise categories including groceries, electronics, appliances, apparel, sporting goods, home furnishing products and drugs.
Wal-Mart operates in three business segments: Walmart U.S., Walmart International and Sam’s Club. Walmart U.S. segment is the largest segment of its business, accounting for approximately 60% of its revenues.
The U.S. segment is the most valuable to the company. Wal-Mart has built a trusted brand with a clear value proposition and has expanded across the U.S., resulting in it becoming the nation's largest retailer.
Wal-Mart US stores are bigger and yield more revenue per unit of retail space
Although Wal-Mart has around the same number of international stores as US stores, an average U.S. store is about 2.5 times as big as the international store in terms of retail square footage. As of 2012, square footage per store for Wal-Mart US was 160,000 while that for Wal-Mart International was 56,700. Revenue per square foot for Wal-Mart's U.S. stores in 2012 was higher at $436 versus $404 for Wal-Mart's International stores. Thus, despite being similar in store count, the U.S. segment is more valuable to the company compared to its international segment.
Threat of self-cannibalization due to massive size
Like any retailer, Wal-Mart’s long-term sales and income growth depend largely on the company’s ability to open new stores and expand into new markets. However, due to Wal-Mart’s size, it runs the risk of cannibalizing its own sales figures in the US, thereby effectively competing with itself for market share. The company attributes cannibalization as the reason for a 1.1% decrease of comparable store sales as the company had over-saturated the domestic market with stores.
Wal-Mart pushing more into electronics
Since the closure of Circuit City in 2009, a specialty electronics retailer, Wal-Mart has intensified its push into electronics in order to increase market share. To do so, the retailer has been training its staff and offering discounts. Recent reports indicate that retailers like Wal-Mart and Amazon actually gained consumer electronics market share while Best Buy and RadioShack have lost some.
Shifting focus from store expansion to capital efficiency in domestic market
Wal-Mart has been involved in a massive store remodeling project and expects to remodel about 70% of its stores by the end of this year. The company executives have indicated that Wal-Mart stores in the future will occupy 8% less space, cost 16% less and will run more efficiently. Wal-Mart’s smaller stores, called Express stores, are one-tenth the size of a typical Wal-Mart supercenter and offer 15,000 items in comparison to 100,000 offered at a supercenter. Although their size is much smaller, Express stores offer day-to-day groceries and general merchandise. They are focused on attracting customers who shop regularly for their daily needs.
The company is also taking several merchandising initiatives that are expected to drive comparable store sales, for instance, it has improved the flow of perishable goods in its stores, thereby improving quality.
Focus on social media and technology
Wal-Mart has made strong efforts to become technologically advanced and has leveraged social media in order to reach prospective customers. Its digital technology unit, @WalmartLabs, creates platforms and products around social and mobile commerce. Since its inception, @WalmartLabs has been actively scouting for acquisitions. In November 2011, it acquired Grabble, a maker of point of sale technology that ties in with mobile phones.
Walmart is trying to leverage social media to drive its sales. Recently, it partnered with Facebook and also acquired Kosmix, a social media company to promote its offerings.
Looking at international frontiers for growth
Wal-Mart is keen on expanding in emerging countries as growth has saturated in developed countries. Last year. Wal-Mart acquired a 51% stake in Massmart for $2.4 billion. Massmart runs nine wholesale and retail chains with approximately 288 stores in 14 African countries. Wal-Mart believes that South Africa is a key market for growth and accounts for roughly 20% of consumer spending in the African continent. In addition, emerging countries such as Brazil, China and Mexico are important markets for Wal-Mart
Wal-Mart will be opening its first stores in India within the next two years. India, being the second most populous country in the world, provides a huge pool of value conscious customers.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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