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Walmart (WMT) Rallies About 25% in a Year: Will Growth Continue?

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Walmart Inc. (WMT - Free Report) has strengthened its position as an omnichannel retailer, courtesy of its robust efforts to enhance store as well as online operations. To this end, the company has been focused on upgrading store operations, alongside improving its delivery, pickup and return services in the face of consumers’ increased inclination toward the digital mode of shopping. Certainly, these upsides have been driving sales of this supermarket giant, helping it stay firm against the growing competition from Amazon (AMZN - Free Report) .

Of late, Walmart has been largely benefiting from the burgeoning demand amid the pandemic. In fact, the company’s e-commerce business and omnichannel penetration have been increasing, all the more amid the pandemic-led social distancing. Further, management expects these trends to stay even after the current crisis dissipates. On that note, let’s delve deeper into the factors carving the growth story of this Zacks Rank #3 (Hold) company, which has rallied 24.8% in a year, outpacing the industry’s rise of 24% as well as the S&P 500’s 18%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Robust Omnichannel Efforts

Walmart has been focusing on enhancing merchandise assortment, alongside undertaking store remodeling, to upgrade them with advanced in-store and digital innovation. Evidently, the company remodeled 205 stores in the third quarter, alongside opening a new store. The company, on its earnings call, said that it has doubled the U.S. store associate count to support its digital and omnichannel efforts. Markedly, Walmart has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems. During the third quarter, the company unveiled an additional investment in India’s Ninjacart for technology and supply-chain solutions. Apart from these, the company’s contracts with Goldman Sachs (GS - Free Report) , Shopify (SHOP - Free Report) and Green Dot and buyouts of ShoeBuy, Moosejaw and Bonobos, among others, are noteworthy.  

Further, the buyout of a major stake in Flipkart has been bolstering its International segment. Apart from this, Walmart is making aggressive efforts to expand in the booming online grocery space, which has long been a major contributor to e-commerce sales. In fact, the company's delivery service has become all the more vital amid coronavirus-led social distancing. Earlier this month, the company unveiled its pilot with HomeValet, which will help the former deliver fresh groceries to shoppers’ doors at any point, regardless of whether they are home or not. In the third quarter of fiscal 2021, Walmart took several robust strides to strengthen its delivery arm, including the launch of the Walmart + membership program; drone delivery pilots in the United States with Flytrex, Zipline and DroneUp; and a pilot with Cruise to test grocery delivery through self-driven all-electric cars.

Walmart also unveiled an alliance with Door Dash to deliver prescriptions from pharmacies of Sam’s Club, alongside expanding Scan & Go to all fuel stations at U.S. Sam’s Clubs. Prior to this, the company unveiled Express Delivery during the first quarter at several stores, which helps it deliver orders to customers in less than two hours. Furthermore, the company’s store and curbside pickup options add to customers’ convenience. As of the fiscal third quarter, Walmart U.S. had 3,600 pickup locations and 2,900 same-day delivery locations. Incidentally, U.S. e-commerce sales soared 79% in the third quarter with strength across all channels, including robust traffic at Markedly, marketplace and pickup & delivery sales jumped at a triple-digit rate. Certainly, Walmart’s combination of a robust store network and growing digital capacity is likely to keep it in good shape.

Growth Story Likely to Sustain

The abovementioned upsides, together with burgeoning demand for essential items amid coronavirus, have been working well for Walmart. Further, higher stay-at-home trends are boosting e-commerce sales. Such trends drove the company in third-quarter fiscal 2021, wherein both top and bottom lines cruised past the Zacks Consensus Estimate and grew year over year, reflecting a continued rise in demand across categories amid the pandemic. Walmart is also gaining from its compelling pricing strategy, which helps it draw customers. The third-quarter fiscal 2021 marked the company’s 25th consecutive quarter of U.S. comp sales growth.

Walmart has been incurring high COVID-19 costs such as higher wages and benefits, along with costs associated with sanitization and other safety measures. The company incurred roughly $600 million as additional costs related to COVID-19 in the third quarter of fiscal 2021. Management expects pandemic-related costs to prevail for a while now, alongside anticipating some general uncertainties globally. Nonetheless, the aforementioned upsides, especially sturdy demand amid the pandemic, are likely to help the company overcome these challenges and sustain its solid momentum.

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