Wal-Mart Stores, Inc. (WMT - Free Report) is reportedly laying off a number of employees this month in its international and technology businesses and at Sam's Club warehouse chain. Per The Wall Street Journal, the move is part of Wal-Mart's plans to lower expenses, owing to rising costs. The company has been witnessing increased costs due to higher investment in e-commerce operations. The company is making efforts to maintain its low-cost pricing in the U.S. retail sector and streamline stores, making them more efficient.
In Sep 2016, the company announced its decision to cut about 7,000 back-office jobs, mostly in accounting and invoicing positions at its U.S. stores. The announcement was part of the company’s headcount reduction program announced in Jun 2016 for the West Coast. Wal-Mart, the country's largest private-sector employer, said it would cut back-office jobs at each of its 500 stores in mostly West of Colorado.
In January, the company reported that it will eliminate about 1000 jobs, mostly in human resources department, to curb rising expenses and streamline stores.
We note that Bentonville, AR-based Wal-Mart, carrying a Zacks Rank #3 (Hold), has been grappling with near-term headwinds. Increased competition from traditional and online players and slowdown in international operations along with a strong dollar are hindering sales. The industry-wide weakness in the grocery/supermarket business is impacting Wal-Mart’s operations. The industry is grappling with food deflation, stiff competition, aggressive promotional environment and waning store traffic.
Additionally, Wal-Mart is making huge investments in e-commerce initiatives to compete with the biggest online retailer, Amazon.com, Inc. (AMZN - Free Report) . The acquisition of U.S. e-commerce company, Jet.com, in Sep 2016 marked a major step toward accelerating its online business. The acquisition has offered customers a massive online marketplace where they can purchase items at discounted prices.
Then, in March, Jet.com acquired trendy online clothing seller, ModCloth. Prior to ModCloth, Wal-Mart bought Moosejaw, an outdoor apparel and gear retailer for $51 million and e-commerce shoe retailer ShoeBuy for $70 million in 2017. This move was aimed at raising the company’s stake in the online business. Further, the company is planning to create a new technology-startup incubator, called Store No. 8, in California’s Silicon Valley in order to help the company’s acquired e-commerce businesses to grow and flourish thereby enhancing the online shopping experience.
Wal-Mart is also aggressively foraying into e-commerce in China with an aim to deliver goods from its stores around the world to consumers within hours. In Jun 2016, Wal-Mart inked a deal with JD.com to sell its Chinese e-commerce business, Yihaodian in exchange for a 5.9% equity stake in the company. In Feb 2017, Wal-Mart increased its stake in Chinese e-commerce website, JD.com Inc., to 12.1%, worth roughly $4.87 billion. This is up from the 10.8% stake it had in Oct 2016, and its 5.9% stake in June. The move was in line with the company’s aim to grab greater market share in the world’s largest online market and expand its reach in China, where it has been struggling of late.
Wal-Mart also launched its own mobile payment system called Walmart Pay in all of its 4,500-plus U.S. stores in Jul 2016. This system enables shoppers to pay through its existing smartphone app. This marks another step toward accelerating the company’s online business and making shopping easier and faster. Wal-Mart already has a delivery service called Walmart Pickup, which enables customers to place orders online and then pick them up at a store for free.
Despite prevailing headwinds, it is encouraging to note that Wal-Mart continues to impress investors with positive comps at Wal-Mart U.S. for 10 successive quarters. Further, the company is making efforts to understand the evolving needs of customers to regain their confidence and thus, boost sales.
Share Price Movement
In fact, the stock has exhibited a bullish run on the index since past one year. We note that in the said period the stock recorded 6.2% growth, outperforming the Zacks categorized Retail-Supermarkets industry, which showcased improvement of just 2.3%. We believe there still much value left in the stock, which is quite evident from its Value score of ‘A’, Growth score of ‘A’, Momentum score of ‘B’ and VGM Score of ‘A’.
What further makes us optimistic about its performance in the near term is its low beta of 0.13 and long-term earnings growth rate of 6.9%. Further, the retailer has delivered positive earnings surprises in the past six consecutive quarters.
Key Picks from the Sector
Investors interested in the broader retail space may consider Burlington Stores Inc. (BURL - Free Report) and The Children’s Place, Inc. (PLCE - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). While Burlington has a long-term earnings growth of 15.85%, Children’s Place has growth rate of 8.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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