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Stock Strategist

This Wide-Moat Retailer's Strengths Persist Despite Headwinds

Wal-Mart’s comparable-store sales are trending in the right direction.

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Though wide-moat  Wal-Mart (WMT) has faced several headwinds over the past few quarters, we think the firm has the scale and reputation to compete amid elevated competition, which is bound to exist in the multichannel retail environment of the future. Higher health-care costs, reductions to consumer food stamp benefits, weak income growth, confidence among lower-income consumers, and heightened competition have all challenged the firm recently. However, while we expect the latter two headwinds to persist going forward, gas prices have fallen, some cost pressures will dissipate, and Wal-Mart’s U.S. comparable-store sales increased 0.5% during the third quarter, so there is some room for optimism.

In the United States, Wal-Mart plans to develop multiformat store "ecosystems" that serve all trip types (stockups at Supercenters, basic food trips at Neighborhood Markets, and fill-in trips at conveniently located Express stores). It intends to strategically open new Neighborhood Market and Express stores in areas where other small-format competitors (predominantly the dollar stores) have built a presence over the past few years.

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.