You may not know it, but Walmart (NYSE:WMT) has quietly been one of the best performing retailers of recent years.
In fact, it has outperformed the best retail stocks over the past three years Costco Wholesale, Amazon, GoalAnd Home Depot as the graph below shows.
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Data per YCharts.
Walmart has reinvented itself over the past decade from a stodgy brick-and-mortar retailer that lost ground to Amazon to a modern omnichannel operation, delivering everyday low prices and convenience to customers and finding growth opportunities in e-commerce, advertising and in India. .
That strategy has paid off for investors, as Walmart just reported another round of strong growth. In the third quarter, total revenue rose 5.5% to $169.6 billion, delivering impressive revenue gains across all three business segments. In its largest segment, Walmart US, it reported comparable sales of 5.3%, driven by growth in transactions and average ticket sales, and also gained market share across all income cohorts.
Walmart is the largest retailer in the US and the world, and its performance has a major impact on other retailers, especially those with which it competes directly. The recent results are likely to put more pressure on discount retailers in particular, Dollar general (NYSE:DG)the nation’s largest dollar store chain.
Image source: Getty Images.
Like Walmart, Dollar General is ubiquitous in the American retail landscape. The company now has more than 20,000 stores, making it the largest retail chain in the country.
For a long time, the stock has been a reliable winner, with its strategy of blanketing rural America with stores and offering low prices on consumables such as food, beverages and paper products in small package sizes, in addition to seasonal items and hard goods. But the stock has struggled lately. In fact, the stock is now down 72% from its peak in late 2022. While Walmart has soared over the past three years, Dollar General has moved in the opposite direction after a series of disappointing results.
In its second fiscal quarter, which ended in early August, Dollar General reported same-store sales growth of just 0.5%, and operating profit fell 21% to $550 million, while gross profit margin fell 112 basis points to 30% . , which the company blamed on increased markdowns.
Notably, Walmart reported an increase in gross margin in its (non-concurrent) quarter, up 42 basis points due to a lower markdown and strong inventory management.
Walmart and Dollar General both have similar customer bases, although Walmart has a broader demographic income range and the two retailers also compete in many of the same categories.
In 2023, consumables made up 81% of Dollar General’s net sales, including food, beverage, paper products, personal care products, pet products and tobacco. At Walmart’s U.S. stores, the supermarket, which includes similar categories, represented 60% of sales, and at Sam’s Club it made an even larger contribution.
Walmart’s strength in groceries is a key reason for its success in recent years, as investments such as its online grocery pickup program and Walmart+ have paid off.
Dollar General doesn’t have the ability to match these initiatives, and they appear to be taking their toll on the discount retailer and peers like Dollar treewhich is less dependent on consumables than Dollar General.
Management has attributed the struggles to inflation and pressure on low-income consumers, and the company has noted increased competitive activity in the sector, including more promotions.
The company is basing its recovery on its back-to-basics strategy, which includes improving timeliness and accuracy in the supply chain, better execution in stores and a focus on customer-centric merchandising. It has made changes such as increasing employee presence at the front of stores and improving inventory levels.
Dollar General’s efforts could pay off and moderating inflation should also help, but it will be difficult for the company to regain market share while Walmart is achieving 5% comparable sales growth.
Investors will find out more when Dollar General reports third-quarter earnings on December 5, but after another explosive report from Walmart, expectations for Dollar General should be muted.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Target. The Motley Fool holds positions in and recommends Amazon, Costco Wholesale, Home Depot, Target, and Walmart. The Motley Fool has a disclosure policy.
Walmart’s latest result spells bad news for the discount retailer and was originally published by The Motley Fool
