WMT | Biggest Reads are Not WMT (Macro, TGT, AMZN, HBI)

It’s easy to say ‘WMT Killed It’ especially for someone who is Long the stock (me). The reality is that the quarter was terrible – de-leveraging 1% sales growth into a 12% EPS decline. But on the margin – where the market lives – it was definitely better (yah…NewsFlash, I know). There are a few take-aways, only one of which really has to do with Wal-Mart.

1. #growthaccelerating.  Keith and our Macro team are looking for GDP acceleration to 4.2%yy growth by 2Q. WMT just put up its best US comp in nearly five years. Check.
2. Traffic was up 1.4%, accelerating from 0.7% last quarter. That’s now nine quarters of positive traffic for WMT. E-comm up 36% -- off an admittedly low base of 3% of sales. But growth is growth.
3. I still think that McMillon will be CEO of the year. He took up investment spending in stores, in both online and in-store content, and bought an e-comm infrastructure WMT failed to build over the course of a decade. Expectations – over TREND and TAIL duration – are in-check and very doable (even with the AMZN grocery call). Check.
4. Speaking of AMZN, WMT just accelerated 4Q growth in the US while AMZN slowed on the margin. I know I’m nit picking here giving the parabolic 21% growth at AMZN. But numbers are numbers, yes AMZN added $4.5bn in 4Q US revs, but WMT was not too far behind at $2.3bn. That spread is narrowing. That’s a #fact that matters with WMT trading at 8x EBITDA and 16x EPS, with AMZN at 32x EBITDA and ‘infinity’ times earnings.
5. Don’t extrapolate this to Target. WMT ‘out-trafficked’ (that’s now a word, fyi) TGT last quarter by 350bps. It’s gonna happen again, imo, with limited growth in AUR/basket at TGT. As good as McMillon is – that’s how bad Cornell is. He’s done the opposite. Underinvesting in the core (check out the SG&A per ft analysis below – WMT accelerated again this quarter #investing. TGT likely to decel -- again), buying stock at the peak, with literally no levers to pull to grow this business. I don’t think he’ll be living in Minny on the last day of 4Q.
6. This is a very bad read for HBI. Check out the following. LINK: HBI | WMT = Another Big Tell re Rev/Margin/Covenant Risk
7. WMT SIGMA looks stellar. Great 4Q Gross Margin setup.