Walmart may rethink its grocery delivery program now that Amazon has eliminated the fee for Prime members
Walmart Inc. is expected to turn in fiscal third-quarter results that show the retail giant is snapping up market share when it reports on Nov. 14 before the opening bell, but Amazon.com Inc.’s elimination of its grocery delivery fee is turning up the heat on the competition between the two rivals.
“Walmart should see a tailwind from its efforts to add online grocery pickup to more stores,” UBS said, with pickup available in 3,000 stores on Sept. 12. “It should also benefit from Walmart’s efforts to offer an increasing selection of general merchandise available for pickup,” with most of its general merchandise now available for pickup.
However, Amazon’s AMZN, -1.40% decision to eliminate the $14.99 grocery delivery fee will likely make Walmart WMT, +1.56% rethink its grocery delivery program.
Walmart offers “Delivery Unlimited,” launched in September, which costs $98 annually and $12.95 monthly for unlimited grocery delivery.
The retail giant has also launched InHome Delivery in three cities, giving those customers the option of letting a delivery person put purchases directly into the refrigerator.
“We believe the Amazon Fresh decision in particular could cause Walmart to rethink its fee structure, particularly given its greater focus on conventional grocery and Walmart’s desire to win share in the emerging online grocery channel,” UBS said.
Amazon Fresh is offered in major areas that account for about 35% of the U.S. population, UBS notes.
Walmart WMT, +1.56% has been focused on its digital business, reporting 37% U.S. e-commerce sales growth in the fiscal first quarter and second quarter of this year and 43% e-commerce growth in the fourth quarter of fiscal 2019.
“The investment case for Walmart shares is aided by the favorable consumer environment,” wrote John Zolidis, president of Quo Vadis Capital. “However, the core reason to be involved, in our opinion, is based on the company’s ability to create separation versus competitors via the combination of enhancements to physical stores and aggressive investment in digital assets and order fulfillment.”
UBS is also bullish about Walmart.
“We believe Walmart continued to take market share in Q3, helping to support another period of steady comp growth,” analysts led by Michael Lasser wrote.
The FactSet consensus is for same-store sales growth of 3%, with 3.1% growth at Walmart U.S.
UBS rates Walmart stock neutral with a $115 price target.
Walmart has an average overweight stock rating and average target price of $125.18, according to 30 analysts surveyed by FactSet.
Here’s what to watch for in Walmart earnings:
Earnings: FactSet is guiding for earnings per share of $1.09, up from $1.08 last year.
Estimize, which crowdsources estimates from sell-side and buy-side analyst, hedge-fund managers, executives, academics and others, expects per-share earnings of $1.12.
Walmart has beaten the FactSet earnings estimate the last seven quarters.
Revenue: The FactSet outlook is for revenue of $128.60 billion, up from $124.89 billion in 2018.
Estimize is forecasting revenue of $129.24 billion.
Walmart beat the FactSet revenue expectation last quarter, but missed the one prior to that.
Stock price: Walmart stock is up 12% for the past three months, and 29.2% for the year to date.
The Dow Jones Industrial Average DJIA, +0.33% has gained 19% for 2019 so far.
Other items:
-Walmart U.S. will be looking to John Furner, its new chief executive, to take the business to “new heights,” Cowen analysts say.
Walmart announced last month that its U.S. CEO, Greg Foran, would be stepping down to lead Air New Zealand, with Furner taking the vacated position on Nov. 1.
Cowen analysts credit Furner with turning around Sam’s Club, thanks in part to a focus store experience and tech tools for staff.
“We believe Mr. Furner will bring a similar mindset to Walmart U.S. and we anticipate a renewed focus on further bridging the physical and digital experiences through mobile innovation,” Cowen said. Among the innovations analysts think are possible: virtual testing for beauty products and the use of “smart” barcodes that provide product information when scanned.
Cowen rates Walmart shares outperform with a $140 price target.
Bank of America analysts also think Furner will continue Walmart U.S.’s momentum.
-Walmart is growing its grocery business without raising prices, according to BMO Capital Markets.
“Our proprietary Custom-Cut Walmart Grocery Index continues to point to U.S. grocery market share gains,” analyst Kelly Bania wrote. “And while it appears that some retailers may be passing on more grocery pricing, our pricing study indicates that Walmart continued to invest in price.”
Walmart has widened the pricing gap with Kroger Co. KR, +0.15% to about 10% from 7% to 9%, which is a “major advantage” in the price-transparent digital grocery retail space, BMO said.
Moreover, Bania is bullish on the grocery share gains that the Grocery Unlimited program and other initiatives will yield.
BMO rates Walmart shares outperform with a $125 price target.