How Walmart is winning and keeping market share: Analyst

Walmart (WMT) reported second-quarter earnings that beat expectations on both revenue and profit. The company also raised its full-year guidance. Michael Baker, D.A. Davidson managing director and senior research analyst joins Catalysts to discuss Walmart's future outlook.

Baker notes that he is "not surprised" by Walmart's strong performance, noting their results "look better than most retailers." He points out that Walmart is "taking a lot of market share" and that "their trends are better than the overall consumer environment." In contrast, Baker suggests that competitors like Target (TGT) face lower expectations and are unlikely to match Walmart's earnings results.

"In this environment where the consumer, we think, is still very strapped, the focus is on value and consumables more than discretionary goods. And so that does favor retailers like Walmart," Baker tells Yahoo Finance.

Baker emphasizes that Walmart's success goes beyond just offering value. He highlights the company's investments in convenience, improved product mix, and store upgrades, stating that "all those things are helping them not only win market share but keep that market share."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video Transcript

All right as well.

My captures consumer wallets that are in search of deals.

The retail giant is standing out relative to other consumer names here with more D A Davidson, managing director and senior research analyst, Michael Baker, Mike, thanks for being here.

Obviously, we've been having some fun here talking about Wal Mart, but it is really interesting that they are saying that really, we've seen, they've seen a stabilizing consumer.

Were you surprised by that or is that kind kind of in keeping with what you were expecting from Walmart?

Uh They did beat us by a little bit but, but we're not surprised that their results stand out and, and in fact that they did beat, they've been beating the last few quarters and in that their results look better than most retailers.

Uh I, I think what's interesting is there's a lot of news today about how the consumer is still resilient and strong.

I don't, I think Walmart is taking a lot of market share.

So their trends are probably better than the overall consumer uh environment.

Uh They want very few retailers that are, that are showing these kind of results and, and again, I think it's because of their market share gains, Michael.

Right on.

Uh, I, I very much agree with you that this is a market share story at Walmart, which brings me to this question when target reports next week, their quarter could pretty much be dreadful.

No.

Yeah, their quarter will not look as good as Walmart.

Uh, we know that now the expectations are lower and target has comped negatively four quarters in a row.

So if target were simply to get to flat, that would be a victory for them.

Uh So clearly, still losing market share to other retailers, including one Wal Mart.

But in terms of the expectations just being a much lower, you know, just the expectations being much lower.

Target could also look good in terms of the stock price, even if their numbers are not nearly as good as Wal Mart.

Is it too simple to say Michael that at this point, Wal Mart has just become America's supermarket.

Uh People are consolidating their trips and they're going to Walmart and they're not making that extra trip to a target.

And I would even say a Kroger.

Well, people are going to Walmart, Costco and Amazon that, that, that's my view.

Th those are the three retailers taking share.

Uh Everyone else seems to be losing market share particularly in consumables, as you said.

Uh And in this environment where the consumer again, we think is, is still very strapped.

Uh the, the focus is on value and consumables more than discretionary goods.

And, and so that does favor retailers like Walmart, like Costco, like Amazon.

Now, each of those companies including Walmart today has been able to sell some of the higher margin, more discretionary general merchandise products.

But that's because they're getting people into the door with the, with the, uh, the needs rather than the wants and then, and then sort of extending them across the aisle if you will.

Well, Mike, this reminds me of something that our friend Simeon Siegel over BMO capital markets recently he wrote about and he doesn't cover Walmart, but he covers a lot of the other specialty retailers.

And he said it's not that people aren't spending money.

So it does matter execution when you're talking about these retailers.

So I know value is certainly part of this proposition.

But what is something like Walmart doing right?

That maybe some of its other competitors is not, is how much of the story is execution?

Well, I think a lot of it.

Uh so, so Walmart is definitely benefiting from the value positioning and, and, and that is certainly helping, but they have done a great job in execution over the last few years and in investing in areas like convenience, like a better product mix, a better store layout and store look.

So all those things are helping them not not only win market share but keep that market share and in particular, with, with high customers, households earning $100,000 or, or more.

Uh And so we really got to give a lot of credit to the management team.

These have been investments that they've been making for years to, to drive those things.

So it's not just by accident, it's not just falling into, uh you know, a time when convenient uh is resonating with, with customers.

Walmart has really done what they need to do to capitalize on that.

And by the way, they've been able to grow margins at the same time.

So when you think about consumers uh focusing on, on, on con or sorry, on value, that might make you think that, well, they're only gravitating towards lower prices and that could hurt margins, but Walmart has been able to grow their margins because of these investments that they're making in these other areas.

Let's uh forget about Walmart for a second, Michael looking in the back half of the year.

What are some of your top retail stock picks?

Well, let's not forget about Walmart because that's been one of them.

That's been one of our favorite names for the year and, and still is, uh we wrote a report uh about a week, about a week and a half ago where we talked about.

Um Well, we sort of reset our, our back half themes and we said that 80% of the retailers that we cover gave back half guidance that call for an acceleration of trends and that's going to disappoint.

So most retailers are gonna have to cut their guidance two that we highlighted that would not have to cut their guidance are Walmart.

So we saw that we still like that.

We still like that one.

The other one is Dick Sporting Goods.

Uh That's been a great so and we think that will continue.

There are also taking market share.

Uh Their guidance is, is is nicely conservative such that not only will they not have to cut, we think they could be.

So that's a favorite.

And another thing we've recommended uh and like still is alter now, it has not been a great stock year today.

We know that, but we got a little bit of a boost from Warren Buffett today.

We have that in what we call our best of breed Bison category.

Uh uh really takes inspiration from Warren Buffett and looks for these sort of great franchises with votes that, uh you know, the valuation has come down from what we think is a temporary issue.

Uh And, and so we step up our investments in that and that's been a favorite idea.

Um And, and we think we'll also perform in the back half of the year and it shouldn't, we should note, uh Dick Sporting Goods report, September 4th and New Warren Buffett favorite and uh original Michael Baker favorite alter reports, August 29th.

Really good.

Uh insight there.

Uh Appreciate it as always, Michael Baker.

We talk to you soon.

Great.

Thanks guys.