Walmart eyes $64 billion August profit as rivals slash prices | kbnmart

August looks set to be a huge month for Walmart — and a disastrous month for some of its discount chain rivals — as consumers rein in spending.

Shares of the Bentonville, Arkansas-based retailer rose about 12% in August, marking its best month since October 2017 and adding about $64 billion to the company’s market value. The advance was helped by a stronger-than-expected second-quarter earnings report driven by price-conscious shoppers.

Walmart has been able to attract more bargain hunters, especially the wealthy, as consumers struggle with higher borrowing costs and evaporating savings due to the pandemic. But pickier consumers coupled with Walmart’s push into e-commerce have left rivals struggling to make ends meet, the chief executive of Dollar General Corp. was forced to acknowledge during the company’s earnings call.

“The guys in Bentonville are doing a very good job of mobilizing the traffic that’s available there from other retailers,” Dollar Store CEO Todd Vasos told analysts Thursday. Shares plunged a record 32% after the company cut its full-year sales forecast following weak quarterly results. Dollar Tree Inc., which reports next week, fell 10% in sympathy.

Dollar stores weren’t the only ones suffering this month. Shares of discount home goods retailer Big Lots Inc. fell after Bloomberg reported that it was considering filing for bankruptcy.

That puts Walmart among a select group of retailers that have managed to impress Wall Street this earnings season. Last week, Target Corp. posted its best day since March after low commodity prices helped push comparable quarterly sales above analysts’ expectations. Shares of discount retailers TJX Cos. and Ross Stores Inc. also rose after the companies posted better-than-expected results.

“People want to save money, but stores need to be well managed,” said Ed Cofrancesco, chief executive of International Assets Advisory, which manages $5 billion in assets. “We’ve been promoting Walmart for a while,” he said, noting that he began adding to his Walmart stake six months ago amid signs the economy was slowing.

As retailers like Walmart expand their digital and brick-and-mortar offerings, dollar stores have “somewhat lost their appeal in terms of value and convenience,” according to CFRA analyst Arun Sundaram. A company like Walmart also has more leverage it can use to keep prices low as higher-margin revenue streams like advertising can support price cuts, he said. Sundaram downgraded Dollar General from buy to hold on Thursday.

Walmart has found a sweet spot with frugal consumers as the lowest-cost provider in retail, according to Michael O’Rourke, chief market strategist at Jones Trading.

“You’re seeing a weakness in consumer exposure across a number of different retailers or consumer brands. People who want to maintain exposure to the stock market will go to Walmart stores around the world that do the buying and selling,” he said.

One point of contention for some on Wall Street is Walmart’s valuation, which at 29 times future earnings is well above the average of the S&P 500 consumer staples index and peers like Target.

“It’s been consistent, but you’re also paying a premium for it,” O’Rourke said.