@StickyRice：Walmart’s inventory, margin issues appear transitory - Morgan Stanley Walmart is likely to complete its inventory clearing actions by the close of the year, according to Morgan Stanley analyst Simeon Gutman. “WMT's gross margin contraction in Q2 (anywhere from 60%-80%) was likely driven by markdowns,” he told clients in a note on Friday. “We don't know how much excess inventory WMT needs to work through in 2H, and margins could still see a drag from markdowns – but it shouldn't linger into next year based on our math.” He added that while sales in discretionary categories broadly declined, apparel sales appeared to bounce back from April. This trend suggests that Walmart’s (NYSE:WMT) “aggressive markdown strategy is working,” Gutman wrote. He expects grocery, auto parts, and pet categories will also show notable growth in the quarter given their more non-discretionary characteristics. Elsewhere, Gutman expects the retailer’s second quarter report to reflect greater penetration in higher income households. Morgan Stanley data indicates higher income household penetration rates have increased 2% in the course of the quarter. “This suggests higher income households are changing behaviors by trading down to discount channels like WMT,” Gutman concluded. He reiterated a Buy-equivalent rating on the stock and assigned a $145 price target to shares. Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Comments