Let’s face it: No matter what you do, some people just aren’t going to like you.
The same goes for companies. Take Walmart (WMT) , for example.
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It’s the largest retailer in the world, serving nearly 37 million people every day. Yet there’s a man in Florida who police said got so annoyed with one of Walmart’s delivery drones that he allegedly took a shot at the thing.
“I fired one round at it,” Dennis Winn, 72, told police, according to USA Today. “They say I hit it so I must be a good shot, or else it’s not that far away. … I’m going to wind up having to find a real good defense lawyer.”
Winn was charged with shooting at an aircraft, criminal-mischief damage over $1,000, and discharging a firearm in public or residential property, the Sheriff’s Office in Lake County (north and west of Orlando) said.
Analyst: WMT tone from the top ‘clear confidence’
All right, so you probably won’t be running into that guy at a Walmart anytime soon, but the Bentonville, Ark., retail giant has been attracting customers from a higher income bracket.
Company executives told analysts during Walmart’s first-quarter-earnings call in May that higher-end customers, defined as households earning more than $100,000 a year, helped drive a 22% surge in online sales.
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“We are not just a play for value anymore,” Chief Financial Officer John David Rainey said. “And convenience matters to someone irrespective of what your paycheck is, irrespective of what your income level is. And we expect that to be durable. We don’t expect that to change.”
A survey by the market research firm YouGov also found “consideration for Walmart among households earning more than $100,000 a year has risen to 54% from 50.6% last year.”
And that increase in higher-income customers was one of the factors that Deutsche Bank analyst Krisztina Katai cited when she raised the investment firm’s price target on Walmart to $77 from $71 and affirmed a buy rating on the shares.
Katai said the price-target boost followed the firm’s meeting with Rainey, Steph Wissink, senior vice president of investor relations, and Kary Brunner, director of investor relations.
The analysts said the tone from the top was “clear confidence” in its multiyear top- and bottom-line algorithm led by gains in market share; unlocking profit from supply-chain automation and alternative value streams, such as advertising, data, fulfillment, membership and marketplace); e-commerce profitability within the next few years, and upside by further strengthening the assortment of general merchandise.
Katai said in a research note that Walmart could generate close to 30% of operating profit from its alternative value streams by 2026.
She also said that increased visibility into Walmart’s earnings power from its high-margin alternative businesses result in further multiple upside. Walmart’s forward price-to-earnings multiple right now is under 28, according to Finbox.
“Management continues to see a cautious but broadly consistent consumer, with the majority of share gains coming from the high end,” she said.
More young consumers going to Sam’s Clubs
Katai said Sam’s Club, Walmart’s membership-based warehouse stores, continues to see strong membership gains and same-store-sales momentum.
In fact, she added, “younger consumers (Gen Z and Millennials) represent its largest growth cohort, with both responding to overall value and digital enhancements such as curbside pickup and Scan & Go.” That technology enables consumers to scan their items as they shop and check out in the Sam Club’s app.
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In addition, Katai said that while Walmart’s international business is often overlooked, it is the fastest growing segment within the core. India is on its way to inflect to profitability for WMT, she said.
“Looking ahead, the team highlighted that it sees the largest opportunity with the higher-income cohort,” she said. “It believes that its perception of WMT is changing, and ultimately the market-share gains from this cohort is helping transform the business.”
Further, Walmart’s team highlighted the convenience factor from its delivery services, Katai said.
Until now, the majority of Walmart’s e-commerce business has been pickup, but this year marked a change where the company delivered 4.4 billion items on the same or next day compared with Amazon (AMZN) at 4.3 billion last year.
In the past two to three months, Katai said, the team noted that delivery surpassed pickup, which it expects will continue. And the quality of assortment is improving. Walmart is selling Apple (AAPL) computers, for example, which she says will begin to drive upside as the sales mix improves.
In addition, Stifel analyst Mark Astrachan raised the firm’s price target on Walmart to $71 from $69 and affirmed a hold rating on the shares.
The firm’s analysis of U.S. scanner data shows Amazon, Costco (COST) and Walmart accelerating U.S. grocery-market-share gains since 2019, Astrachan said.
Amazon and Costco have accounted for 11% and 12%, respectively, of U.S. grocery-category dollar growth from 2019-2023, while Walmart with Sam’s Club accounted for 40% of category growth from 2020-2023, the firm’s analysis showed.
Stifel also raised its price target on Costco to $900 from $850 and maintained a buy rating on the shares.
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