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Will Walmart Continue to Cruise Ahead of Industry in 2018?

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The Retail - Supermarkets industry has depicted a marvelous bull run this year, as evident from its year-to-date surge of 36.6%, in comparison to the S&P 500's 22.8% upside. Notably, Wal-Mart Stores Inc.WMT is a bellwether that flawlessly crushed this robust trend too, with its rally of 46.5% this year. On the contrary, this supermarket giant's industry peer Kroger KR plunged 19.4%, whereas Tesco TSCDY grew 9.4% in the same time frame.

So, let's look at the factors that helped this Zacks Rank #2 (Buy) company march ahead of the industry, and see if it can sustain this trend in 2018. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

What's Driving Walmart's Superb Performance?

Walmart has been gaining from its incessant efforts to expand in the e-commerce space and counter Amazon's AMZN rising dominance. Wal-Mart's focus on becoming an omni-channel retailer is well evident from plans to become "Walmart" from "Wal-Mart Stores", effective Feb 1, 2018. Well, the company has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems.

Evidently, Wal-Mart's buyouts of Bonobos, ShoeBuy, Moosejaw, ModCloth and Jet.com underscore its quest to build an impressive digital brand portfolio. The company's Walmart Pay mobile payment system, and Mobile Express Returns program also highlight its focus on accelerating online business.

Apart from this, Wal-Mart is making aggressive efforts to expand in the booming online grocery space, which was a major contributor to its e-commerce sales in the third quarter. Most recently, sources revealed that the company started offering meal-kits online, a card that Amazon had played this July. Further, Walmart's efforts to enhance its delivery services (like buyout of Parcel and deal with Deliv) also resonates quite well with its strategy of growing its online grocery sales.

Backed by all aforementioned endeavors, Walmart's U.S. e-commerce sales soared 50%, courtesy of Walmart.com's performance. Notably, this includes significant contributions from Walmart's online grocery service, which has now expanded to over 1,100 locations and is expected to have 1,000 additions next year.

Apart from having a dominant presence in the United States, Wal-Mart is also gaining from its solid international operations. With operations spread in China, Mexico, Canada and UK, international forms Wal-Mart's second-largest segment, in terms of revenues. Evidently, international sales constituted about 24% of the company's total sales in fiscal 2017, with 10 out of 11 markets recording positive comparable store sales. The company remains committed toward achieving growth across all its markets, on the back of its fresh products; expansion of online grocery and private brands.

The aforementioned drivers helped the world's largest retailer to post its ninth and 13th consecutive quarter of positive earnings surprise and U.S. comps growth, respectively, in the third quarter. Also, management stated that its food categories performed exceptionally well and recorded the highest comps in about six years. These factors keep the company encouraged about its ongoing performance, as reflected in its raised earnings guidance for fiscal 2018.

The company now envisions fiscal 2018 adjusted earnings in the range of $4.38-$4.46 per share, as compared with the prior expectation of $4.30-$4.40. Clearly, the big-box retailer's efforts to exploit each nook and cranny of the e-commerce space is likely to help it keep its spectacular show going in 2018.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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