Moody's Sees Wal-mart's (WMT) Strategy Paying off Over the Long-Term

Walmart (NYSE: WMT) continues to tailor its growth strategy by investing in its employees and its online platform, as well as optimizing its store mix. These strategies will bolster its long-term growth prospects but are affecting short-term results, said Moody's Investors Service.

The company's investments come at a time when flat household income levels are constraining sales for Walmart's main demographic, lower- to middle-income consumers. Other headwinds include deflation in key product categories such as food and the negative impact on international sales of the strong dollar.

"Walmart is facing a perfect storm when it comes to the headwinds affecting top-line growth," said Moody's Vice President Charlie O'Shea. "We continue to believe that the company's multi-channel strategy is sound, and the near-term investments will generate increased profits over the medium to long term."

Online sales came in at around $14 billion for fiscal 2016, growing 12% following 22% growth for fiscal 2015, according to the report "Wal-mart Stores, Inc: Rome Wasn't Built in a Day," which Moody's believes is a sizeable presence for a brick-and-mortar retailer.

In addition, the company has closed 269 stores worldwide and will likely continue to tactically reposition its store base as its online business grows. At the same time, it is also looking to leverage the relationship between its Supercenters and Neighborhood Markets to capitalize on smaller, more frequent shopping trips, which will involve opening as many as 405 stores globally over the coming year.

"Walmart is morphing into a multi-channel retailer and taking an upfront financial hit in the process," said O'Shea. "These investments are crucial for any brick-and-mortar retailer that wants to remain competitive, and will position Walmart for long-term growth."

Moody's subscribers can access this report at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1017763.

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