With fiscal 2024 revenues of $648 billion, Walmart (WMT) is the largest retailer in the world. The company employs approximately 2.1 million associates in 10,500 stores across 19 countries. Walmart is also the largest retailer in the U.S., with about $500 billion in domestic retail sales across more than 5,200 locations.
The company has come a long way since Sam Walton opened his first grocery store in 1962 in the city of Rogers, Arkansas, which is just a few miles down the road from its headquarters in Bentonville, Arkansas.
One big reason Walmart has been so successful for so long is that the company is no stranger to adopting new technologies and embracing transformation. You don’t get to be the world’s largest retailer by stubbornly sticking to a “this is how Sam Walton did it” mindset.
To that end, Walmart has recently been ramping up investment in both its warehouses and AI platforms as it looks to improve its profitability even more.
Walmart Bets Big on Robots
The company has been investing heavily to build out its e-commerce offering. In fiscal year 2024, capital expenditure rose to $20.6 billion, up from $16.9 billion in 2023 and $13.1 billion in 2022. A large chunk of this went into building automated warehouses.
Walmart has set a goal to automate 65% of its stores by 2026, and wants 55% of its packages to go through automated warehouse facilities.
A warehouse has five crucial steps: unload; receive; pick; pack; and ship. The biggest innovations for Walmart’s next-generation technology come in the “pick” and “pack” segment.
With the help of its partner, Symbotic (SYM), Walmart is using robots to automate the steps of picking an item and picking a box. When an online order is placed, the system will bring the packages and boxes from storage straight to the workers to pack orders. This system allows packages to be shipped in less than 30 minutes after a package is clicked to order!
Walmart likes Symbotic’s technology so much, it owns an 11% stake in the company.
Automated warehouses are a big up-front cost, but – assuming the technology works as expected – it should enable Walmart to grow without having to increase headcount over the next several years. In fact, Walmart is planning to add $130 billion of retail sales over the next five years, without meaningfully increasing its staffing.
Walmart Invests in AI
Walmart is also innovating with artificial intelligence (AI). It has partnered with Microsoft (MSFT) and OpenAI to use generative AI to improve the customer sales experience. WMT is an ideal company to use AI; with around 240 million unique weekly customers across 19 different countries, Walmart has access to one of the largest retail datasets in the world.
It is already using AI to suggest products to customers via its app, website and email, and Walmart says that marketing email open rates are higher than ever before. This should help keep customers shopping at Walmart and not looking elsewhere.
This massive amount of data has allowed Walmart to create a profitable advertising business. Ever since Apple (AAPL) gave users the option to stop apps from tracking them around the internet, large retailers such as Walmart have been investing heavily in their own ad products.
Last year, Walmart’s ad revenue grew 28% to $3.4 billion, and it was accelerating in the last quarter, with year-on-year growth of 33%.
To bulk up its advertising business, Walmart recently acquired smart TV company Vizio for $2.3 billion. Vizio has 18.5 million active accounts, which gives Walmart a lot of viewing data and another medium through which to reach its customers.
Walmart is looking to Vizio to gain more know-how to help jump-start its fast-growing e-commerce operations. More than 15% of Walmart’s total sales, or $100 billion, came from online channels in its past fiscal year, compared with just $10 billion a decade ago.
Walmart’s Tech Success
All of this tech spending is working, with Walmart already seeing returns on its investment. In the last quarter, revenue rose 4.9% year-over-year to $172 billion, which beat Wall Street estimates.
Despite inflation, Walmart also managed to increase its gross margin by 39 basis points to 23.3% in the quarter, through a combination of price increases and better inventory management. This is another area where big data helps; Walmart’s AI will automatically spot when products are selling well, and then shift them there.
Wall Street only expects the company’s sales to increase by 8% between now and 2026. The potential for its shareholders will stem from margin expansion, which will be powered by its technology investments.
Walmart stock - currently very near all-time highs - is trading at a forward price/earnings ratio of 25, which isn’t cheap, especially for a company so mature.
But the fact that Walmart is a “value" retailer limits the downside from any potential U.S. recession. In fact, I believe an economic slowdown could act as a tailwind for Walmart.
It is never a good idea to bet against the strength of the U.S. consumer - so, it seems an especially good idea to bet on America’s largest retailer. Buy WMT stock anywhere under $66.
