VALUATION HIGHLIGHTS

1. Walmart US constitutes 76% of the Trefis price estimate for Wal-Mart's stock.
2. Walmart International constitutes 17% of the Trefis price estimate for Wal-Mart's stock.

WHAT HAS CHANGED?

1. Walmart Tops Q4 Results

Walmart's revenue rose 7.3% year-over-year (y-o-y) to $164.05 billion in its fiscal 2023 fourth quarter. The gains were driven by an 8.3% rise in the retailer's U.S. comparable-store sales (excluding fuel) and a 12.2% jump in its Sam's Club comps. Notably, Walmart's e-commerce sales grew by 17%. The company's nascent digital-advertising business also expanded, with global ad revenue up over 20% y-o-y. Also, the company's membership income increased by 7.1% with the member count at an all-time high.

Note: Walmart's FY'23 ended on January 31, 2023.

2. FY 2023 Guidance

Walmart sees net sales growing by 2.5% to 3%. Its U.S. comp sales are expected to grow (excluding fuel) by about 2% to 2.5% y-o-y. The retailer also expects its adjusted earnings per share in the range of $5.90 to $6.05.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Walmart's value that present opportunities for upside or downside to the current Trefis price estimate for Walmart:

Walmart U.S.

• US Revenue per Square Foot: Going forward, we expect Walmart's revenue per square foot to increase gradually from $598 currently to $740 by the end of our forecast period. However, there can be an upside of close to 5% if this figure ends up around $840 by the end of our forecast period driven by online growth and smaller store expansion. On the contrary, there can be a 5% downside to our price estimate if this figure only increases to $680 due to weak consumer confidence, a fall in foot traffic, and self-cannibalization.
• The U.S. Number of Stores: We estimate the number of Walmart stores in the U.S. to decline from about 4,717 in FY 2023 to about 4712 by the end of our forecast period. There can be a downside of approximately 5% to our price estimate if the store count decreased to only 4,693 in a situation where the company further scales down its small store expansion.
• U.S. Gross Margins: We estimate this figure to marginally increase from the current level of 26.1% to 27.8% by the end of our forecast period. There could be a downside of about 5% to our price estimate if rising input costs lead to a decline in margins to about 25.4% by the end of our forecast period. On the contrary, if the retailer keeps leveraging its huge buying power to get discounts from vendors, and margins reach 30%, there can be a 5% upside to our price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Walmart at the top of the page.

BUSINESS SUMMARY

Walmart is the largest retailer in the world with nearly $611 billion in annual revenues and over 10,623 stores worldwide. The company sells goods across almost all merchandise categories including groceries, electronics, appliances, apparel, sporting goods, home furnishing products, and drugs, while strictly adhering to its EDLP (everyday low price) strategy. However, it earns around half of its revenues from groceries.

Walmart operates in three business segments: Walmart U.S., Walmart International, and Sam’s Club. Walmart's U.S. segment is the largest segment of its business, accounting for approximately 60% of its revenues. Sam's Club is the retailer's warehouse model where it charges its customers an annual membership fee, allowing them to buy products at heavy discounts.

SOURCES OF VALUE

The U.S. segment is the most valuable to the company. Walmart 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.

Walmart U.S. stores are bigger and yield more revenue per unit of retail space

Although Walmart has fewer stores in the U.S. compared to international markets, an average U.S. store is about 2.5 times as big as the international store in terms of retail square footage. As of fiscal 2023, the square footage per store for Walmart US was 148,770 while that for Walmart International was 51,540. Revenue per square foot for Walmart's U.S. stores in FY 2022 was higher at $598 versus $371 for Walmart'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.

KEY TRENDS

Threat of self-cannibalization due to massive size

Like any retailer, Walmart’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 Walmart’s size, it runs the risk of cannibalizing its own sales figures in the U.S., thereby effectively competing with itself for market share. This is the reason why Walmart has slowed down its Supercenter expansion in the U.S.

Improving store productivity and smaller stores in urban markets

Opening more Supercenters and large format stores may be difficult for Walmart due to its massive presence in the U.S. The company is, therefore, focusing efforts on increasing its store productivity. To achieve this, the retailer has been remodeling its stores and converting its discount stores into supercenters. While Walmart’s discount stores offer a wide assortment of general merchandise and a limited variety of food products, its supercenters offer a full-line supermarket and general merchandise.

Walmart’s executives have indicated that the retailer’s future stores will occupy 8% less space, cost 16% less, and will run more efficiently. The retailer’s smaller stores, called Neighborhood market stores, are one-tenth the size of a typical Walmart Supercenter and offer 15,000 items in comparison to 100,000 offered at a Supercenter. Although the size is much smaller, Neighborhood markets offer day-to-day groceries & general merchandise and are focused on attracting customers who shop regularly for their daily needs. This format can be successful in big cities, which have space constraints and where busy schedules limit many customers from driving to a supercenter.

Walmart unveils rewards program for Walmart+ members

The retailer launched its loyalty program Walmart+ at $98/year at the end of 2020. This subscription was priced lower than the $119/year subscription of Amazon Prime. This service expanded upon its existing same-day grocery delivery service, Delivery Unlimited - with discounts on fuel, early access to product deals, and other perks such as reserved delivery slots. Walmart also added a free Paramount+ Essential subscription as a Walmart+ benefit.

The new item-specific rewards are helping Walmart build out ways to reward Walmart+ member loyalty. Walmart plans to integrate its new rewards program with its growing digital advertising business by allowing suppliers to promote product savings within sponsored ads.