Walmart’s very good year

Summary

Podcast Summary: "Walmart’s Very Good Year"
Unhedged
Release Date: June 5, 2025

In this episode of Unhedged, hosted by Rob Armstrong and featuring Greg Meyer, the Financial Times' U.S. Consumer Editor, the discussion centers around Walmart's exceptional performance over the past year. Despite economic challenges like inflation and tariffs, Walmart has seen its shares rise by 47%, positioning itself as a stalwart in the American retail landscape.

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1. Walmart’s Dominant Performance

Rob Armstrong opens the conversation by highlighting Walmart's remarkable stock performance: "Pushkin shares in Walmart are up 47% in the last year despite inflation and tariffs and everything else" (00:36). This sets the stage for an in-depth exploration of the factors contributing to Walmart's success.

Greg Meyer underscores Walmart's scale, stating, "Walmart is the largest US retailer. They're the world's largest retailer. They're the world's largest company by revenue" (01:36). With annual sales exceeding $680 billion, Walmart's expansive presence is undeniable.

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2. Strategies Behind Walmart’s Success

Everyday Low Pricing Strategy
A cornerstone of Walmart's strategy, as Greg Meyer explains, is their commitment to "everyday low price." Unlike competitors who rely on promotions and advertisements, Walmart maintains consistent low prices by leveraging its massive scale to negotiate favorable terms with suppliers (03:38).

Resilience During Inflation
Walmart has thrived in an inflationary environment by providing consumers with reliable pricing. Meyer notes, "since 2021ish, you saw this wave of severe inflation wash over America... they were able to win in that environment" (03:26). This consistency has fostered consumer trust and loyalty.

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3. Navigating Tariffs and Margins

Impact of Tariffs
Rob Armstrong brings up a critical point regarding tariffs: "the CEO said, look, tariffs, prices are going to have to go up a little bit. That's only realistic" (04:39). With a slim operating margin of 4%, Walmart acknowledges the limited capacity to absorb additional costs.

Balancing Stakeholder Interests
Meyer elaborates on the company's dilemma, stating, "they feel they have multiple constituencies, one being their customer, but the other being Wall Street... and their 2.1 million employees" (05:08). This balance is delicate, as Walmart must satisfy both financial performance expectations and workforce stability.

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4. E-Commerce Growth and Amazon Competition

Expanding Online Presence
Walmart's e-commerce sector is experiencing robust growth, increasing by over 20% annually, with U.S. e-commerce sales reaching $79 billion last year (07:43). While not matching Amazon's scale, this growth signals significant progress.

Path to Profitability
In a notable development, Walmart announced that its e-commerce business has achieved profitability on a global scale (08:19). This milestone highlights the challenges of competing with Amazon but also showcases Walmart's strategic advancements in logistics and operations.

Integration of Physical Stores
Unlike Amazon, Walmart leverages its 4,600 physical stores as distribution hubs, enhancing their delivery efficiency. Meyer notes, "they are absolutely committed to... as they grow, the driver can drop off orders to two houses on the cul de sac and not just one" (08:58). This hybrid model bridges the gap between online convenience and physical presence.

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5. Automation and Workforce Management

Maintaining Employment Levels
Despite a $33 billion revenue increase, Walmart's global employee count has remained steady at 2.1 million, even declining slightly over the past five years (10:25). This stability is attributed to significant investments in automation within warehouses and fulfillment centers.

Re-deployment of Staff
Walmart emphasizes that automation doesn't equate to job cuts but rather redeployment. Employees are being trained to enhance customer service and improve in-store experiences, aligning with the company's commitment to workforce development (12:23).

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6. Future Outlook for Walmart and American Retail

Dominance in Retail
Looking ahead, Greg Meyer speculates that Walmart may continue to dominate the retail sector by expanding into new areas such as prescription drug delivery and challenging traditional dollar stores (14:09). This expansion positions Walmart to cater to a broader consumer base, regardless of income levels.

Competitive Landscape
Meyer anticipates increased competition as Walmart's comprehensive model threatens competitors like Target and dollar stores. The integration of physical and online retail is expected to redefine market share dynamics over the next decade (15:26).

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7. Long and Short Segment

Short on Online Sports Gambling Companies
In the "Long and Short" segment, Rob Armstrong expresses skepticism about the profitability of online sports gambling companies. He argues that regulatory pressures and the inability to diversify offerings like traditional casinos make these ventures less viable (16:20).

Short on New Jersey Transit
Greg Meyer shares a personal gripe by shorting New Jersey Transit, citing the inefficiency and inconvenience faced by daily commuters (17:20). This highlights challenges in public transportation infrastructure, especially in densely populated areas.

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Conclusion

Walmart's impressive performance is a testament to its strategic adaptability in a fluctuating economic landscape. By maintaining low prices, expanding e-commerce, investing in automation, and leveraging its extensive physical presence, Walmart not only withstands economic pressures but also positions itself for continued growth. As the retail sector evolves, Walmart's integrated approach may set the standard for future competition and consumer engagement.

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For more insights and detailed analyses, subscribe to Unhedged by the Financial Times and Pushkin Industries.

Transcript

[PGIM Representative]

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[Rob Armstrong]

Pushkin shares in Walmart are up 47% in the last year despite inflation and tariffs and everything else. Today on the show is what is good for Walmart good for America? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from Unhedged World headquarters in beautiful and sunny New York City. And I am joined today by Greg Meyer who is the FT's is it retail correspondent. What do we call you?

[Greg Meyer]

US consumer editor.

[Rob Armstrong]

US consumer. That's very grand, very.

[Greg Meyer]

I strive for grandness.

[Rob Armstrong]

So why is Walmart doing so well, Greg? And what can we kind of learn from that about the state of the American consumer?

[Greg Meyer]

Superlatives really are necessary to discuss. Walmart. Yeah, Walmart is the largest US retailer. They're the world's largest retailer. They're the world's largest company by revenue.

[Rob Armstrong]

I was looking at that number this morning and it's like one company, 680 odd billion of sales every year. It's just staggering.

[Greg Meyer]

Well last last year and it's growing by 4 or 5% a year but, but 4 or 5% for Walmart is like more than the total revenue of most of their competitors. Yeah, they're the largest private sector employer in America with 1.6 million employees here, 2.1 million employees worldwide. They account for 25% of groceries sold in the U.S. and you know, if you live here in New York City, it's maybe easy to miss the fact that they're really everywhere.

[Rob Armstrong]

But you don't have to go far.

[Greg Meyer]

They don't have to go far. Three miles outside the Lincoln Tunnel there is a Walmart in Secaucus, New Jersey right next to a Sam's Club, which was their membership warehouse.

[Rob Armstrong]

And tell me this, will Walmart deliver to me?

[Greg Meyer]

I don't know the answer to that.

[Rob Armstrong]

I'm trying to get home.

[Greg Meyer]

I'm almost certain you can. Whether you can get groceries delivered at home, I'm not sure. And you know, one of the things that we can talk about is one of the successes is that they can bundle together, you know, your broccoli with your flat screen TV and deliver it to Your house. Yes. But your question was why has Walmart been doing so, so well in the past year? They've been growing revenues, as we discussed. They have been growing profits faster than the revenues, but about twice as fast. There are a few reasons. One is, you know, since 2021ish, you saw this wave of severe inflation wash over America, the strongest inflation since my, you're in my childhood.

[Rob Armstrong]

And they were able to win in that environment.

[Greg Meyer]

They were one of their mottos, one of their key values is what they call the everyday low price. They don't go for promotions. They don't put ads in the Sunday, what used to be the, you know, the Sunday circular.

[Rob Armstrong]

Yes.

[Greg Meyer]

You know, saying we're discounting these by, you know, come in today and you come after the discount. They, they instead, they have a massive merchandising operation in Bentonville, Arkansas that is able to consistently negotiate the best prices through their scale from suppliers and, and give customers kind of some faith that what they're getting is going to be, on average, the lowest price.

[Rob Armstrong]

But this brings us to a very timely point, and I think we mentioned this on the show before that in their last conference call, the CEO said, look, tariffs, prices are going to have to go up a little bit. That's only realistic. And as we were discussing before the show, this is a company that makes a 4% operating margin. So there's not a ton of wiggle room in their model to absorb the tariffs. But it was interesting to me that there was a limit to how much, how far they're going to go to have the lowest prices when an exogenous factor like tariffs comes along. What did you make of that decision?

[Greg Meyer]

Yeah, I mean, the CEO Doug McMillan said on that earnings call on May 15, I mean, he discussed the tariffs as they stood at that time. As you know, the US Tariff levels in the countries that have been the trading partners that are affected by them seem to change every hour and a half. But he said as they stood at the time, there's only so much margin they can absorb and that they, they feel they have multiple constituencies, one being their customer, but the other being Wall Street.

[Rob Armstrong]

Yes.

[Greg Meyer]

And the third being their, what they call their associates, their, their 2.1 million employees.

[Rob Armstrong]

Only so far you can push.

[Greg Meyer]

Only so far you can push. So, as you know, a day or two later, President Trump put out a social media message, eat the tariffs. Yes. And in the subsequent earnings calls from other retailers, you heard, in my view, much more opaque, inscrutable discussions. Absolutely.

[Rob Armstrong]

This term. In other, we know that when Home Depot and everybody come out they kept using this phrase portfolio pricing which means some prices go up, some prices go down. We're not really going to comment on what the net effect on pricing is. That's the old hide under the table approach to pricing. When the president is, is know, concerned about inflation and tariffs.

[Greg Meyer]

But still different retailers are affected by tariffs in different ways. Walmart is massive. But their US business, in their US Business only a third of the goods they sell are, are actually imported because it's mostly groceries.

[Rob Armstrong]

People go to Walmart for cheap groceries.

[Greg Meyer]

60% of their, 60% of their U.S. sales at Walmart U.S. is groceries. Yeah, and a lot of that's, you know, foods, that's foods that are grown.

[Rob Armstrong]

Processed in the US I would guess though that the other 40% is more profitable than the food.

[Greg Meyer]

Sure. I mean the margin on a sweater is going to be higher than the margin on bananas. Bananas which are imported actually. Obviously.

[Rob Armstrong]

Yeah, yeah. Or on flour or corn or peanut butter which will come from the United States. Yeah, yeah, yeah, yeah.

[Greg Meyer]

But you know that one third for a company, I mean I think Walmart U.S. sales of that 681 billion, I think their sales are like 464, 65 billion. So a third of that is still just a huge amount of merchandise that is going to be facing I guess at least a 10% tariff for most of the world.

[Rob Armstrong]

But we do have kind of, we have shaped a kind of answer to the question. Your basic answer to why is Walmart doing so well is inflation put the American consumer under a kind of stress. And that works for Walmart's business model because it has the scale and the capability to be the low cost option.

[Greg Meyer]

I think that's one part of it, but not the only part. Another is E Commerce. I mean Walmart has 4,600 stores in the U.S. they have 600 Sam's Club stores in the U.S. but their E Commerce business is growing by more than 20% a year. E Commerce sales.

[Rob Armstrong]

Do we know the absolute number or do they just tell us the growth rate?

[Greg Meyer]

No, they do. For Walmart US E commerce sales last year was 79 billion.

[Rob Armstrong]

So that big number, it's a big number.

[Greg Meyer]

Yeah, I mean it doesn't, it's obviously not Amazon scale.

[Rob Armstrong]

I'm glad you mentioned Amazon.

[Greg Meyer]

Well, I was going to say Gorilla. Yeah, the gorilla. And Walmart of all the retailers who have been at least were thought to be 10 plus years ago sort of existentially threatened by Amazon just announced this at this investor meeting in April, their E commerce business is finally profitable on a, on a worldwide basis.

[Rob Armstrong]

So they're selling that $80 billion worth.

[Greg Meyer]

Of stuff in the US in the.

[Rob Armstrong]

US and they're just breaking even now.

[Greg Meyer]

Yes.

[Rob Armstrong]

That shows you how hard it is to compete with Amazon, I would say. Right?

[Greg Meyer]

Yeah, but, but it has been, you know, it's growing there. You know, the profitability has some, something to do with, you know, as it grows, the driver can drop off orders to two houses on the cul de sac and not just one. So it's just the cost of that trip, or at least the revenue per trip is higher.

[Rob Armstrong]

There's a fixed cost element to it and you start doubling up, you can really make money.

[Greg Meyer]

Yeah. And then also interestingly, they're not becoming a virtual operation. They're not just Amazon with the warehouse down the New Jersey Turnpike or out in Allentown, Pennsylvania. They have these 4600 stores which they are absolutely committed to. And in fact they're planning to add 150 more stores. And that's because they see the stores as critical to the home delivery proposition and the fast home delivery proposition.

[Rob Armstrong]

And this was debated at the time. I remember a few years ago there was debates, can stores be distribution hubs for delivery? And it was not an open, you know, it was not a fait accompli that that model should work. But does Walmart seem to have figured that out?

[Greg Meyer]

I think they're still figuring it out and they're still experimenting for sure. And there are different kind of. Yeah, I mean, they're constantly announcing new ways of doing things and there's sort of partly automated picking operations that are in these annexes attached to stores, including the one in Secaucus which they're building right now. So they're figuring it out.

[Rob Armstrong]

You mentioned automation there and I'm glad because you had a terrific article in our newspaper a little while ago that pointed out that for all of Walmart's incredible growth, their number of employees has been flat. How is that possible? I mean, I assume it's robots are doing something somewhere instead of people.

[Greg Meyer]

The idea from that article came from just looking at their 10k when it, their annual report when it landed a couple months ago, and it reported they had 2.1 million employees worldwide, which was the same number, you know, rounded as a year ago. I think it definitely wasn't more. And this was at a, you know, after a year in which they grew their revenue just in a year by something like $33 billion. And I just thought, how does a company do that.

[Rob Armstrong]

And the point is there's no $33 billion in sales companies with no employees yet Walmart added $33 billion and didn't add any employees. So something incredible happened there. Yeah, in some sense, you know, part of that.

[Greg Meyer]

And in the past five years there, there's total number of employees has actually declined by about 70, 70,000 people, which for Walmart isn't huge. But still for most companies, you know.

[Rob Armstrong]

That'S a lot of growing as much as they are. How, how do they do it?

[Greg Meyer]

Five years they grew the revenue about.

[Rob Armstrong]

50 billion that makes this possible.

[Greg Meyer]

So I mean some of this has over the past five years the longer term trend, I mean it clearly has been inflation. I mean their revenues have gone up because prices on average have gone up for everything. But that's certainly not the only. And part of that and a little bit of the five year story has been a couple of divestitures in Argentina and, and Japan which cut some employees as those businesses were taken out of the equation. But they're investing very heavily in automation in particular in their warehouses, in their distribution centers and their fulfillment centers which serve both the stores and serve the E commerce fulfillment in general. And I should say for E Commerce, not only are they selling their own stuff, but they have a growing third party E commerce business like Amazon does, where independent vendors will list their stuff on Walmart.com and Walmart will handle the warehousing and the delivery on their behalf. And so in these stores, I mean I toured a couple of them outside Dallas a couple months ago. They are, one of them is 700,000 square feet, the other is 1.5 million square feet.

[Rob Armstrong]

So it's roughly the size of like downtown Manhattan, something like that.

[Greg Meyer]

Yeah. And I should say one of them was a refrigerated warehouse which had a variety of sort of temperature gradations, including one that was like the deep freeze chamber. And do they give you a special.

[Rob Armstrong]

Walmart coat when you go in there?

[Greg Meyer]

They did give us coats and hats and thank God they did. I was surprised they did not have us sign waivers to indemnify them against frostbite. I mean this thing was so. And don't worry Walmart, I'm fine. It did not get frostbite, but this was unbelievably cold. But the cold storage warehouse had racks 80ft high, bringing in pallets, disassembling them without human intervention other than a guy with a joystick sending them up into racks and then when time comes, taking them down from the racks by Robot putting them on a conveyor belt, sorting them, you know, all through automation and then ultimately sticking them on pallets so that they're pre sorted to show up at a store so they can go directly to, in this case the freezer aisle. Yes, the aisle that has the milk or the eggs and the cheese, say, and if it's from the Ambien warehouse to the aisle that has the cereal or the aisle that has the sweaters where they don't have to have people in the back room pulling apart the pallet, they just go straight to the anyway, so all this means they need fewer people. Walmart says this doesn't mean they're going to be employing fewer people, but they're redeploying them to do other things. They say to make customer service better, to have, you know, to serve people in the store.

[Rob Armstrong]

Greg let us speculate wildly. Ten years in the future, 2035, where is Walmart and where is American retail?

[Greg Meyer]

ROB I'm a reporter and I have the attention span of a gnat, but I will so it's tough to make predictions. I will say if you just take four pharmacies, cvs, Walgreens, Rite Aid just went bankrupt again. Drugstore chains are already in trouble for a host of reasons.

[Rob Armstrong]

The worst shopping experience known to man is going into one of those stores in New York City. I don't know what those stores are like elsewhere in the country, but man.

[Greg Meyer]

You don't like unlocking, like unlocking your toothpaste.

[Rob Armstrong]

It is just a shambles in those places.

[Greg Meyer]

But, but Walmart is muscling in on that turf. They are now delivering prescription drugs across the country. I think it's 49 states so I just think that's one channel where Walmart is continuing to kind of gobble up share. You're seeing them, you know, affect the share, at least challenge the share of dollar stores which have historically, you know, catered to lower income consumers with more convenience than Walmart. But Walmart now, you know, now they can deliver stuff to the home of any consumer, whether you're low income or high income. So why walk down to the dollar general? Target has, has had its struggles lately. Walmart seems to be maybe pulling some of Target's kind of affordable Chicago aficionado customers as they're making their stores a little bit more dressier. So I think it'll just be interesting to watch the competitive landscape, the market share.

[Rob Armstrong]

Sounds to me like 10 years from today we're all going to be buying even more of our stuff from Walmart. Listeners. We'll be right back with Long and Short. Foreign.

[PGIM Representative]

Bonds are back and so Is all the Credit PGYM Fixed Income's monthly podcast series. From the latest trends to long term perspectives, you'll get timely fixed income insights from leading economists, research analysts and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to all the credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.

[Rob Armstrong]

Welcome back listeners. This is long and Short, that portion of the show where we go long things we like and short things we don't like. And I am short online sports gambling companies and I'll tell you why Casinos are a great business. They levy attacks on the mathematically disinclined, which is a great way to make money. But as my new colleague Hak Yong Kim pointed out in a piece that is in the newsletter today, there's a lot that makes the online model harder. First of all, they can't sell hotel rooms, steak dinners or show tickets at the same time. And second of all, they're just such a natural target for the tax authorities. And I just feel like state, local and federal governments are going to squeeze these online betting shops until there is a very modest return on capital left in that business. Greg, do you have a long or a short for us?

[Greg Meyer]

I'm going to be very provincial and say I am short New Jersey Transit. This may not be a short that necessarily resonates to our global listenership, but I'm sure will to those who live in the New York metropolitan area. I'm one of the many long suffering New Jersey commuters into Manhattan. I live 14 miles from the office, more or less, and it takes an hour and ten minutes one way, door to door.

[Rob Armstrong]

We feel your pain Greg and we join you in your short listeners. We will be back in your feed next Tuesday and until then, try to stay off the trains in New Jersey. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our Executive producer is Jacob Goldman. We had additional help from Topher for his Cheryl Brumley is the FT's global head of Audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30 day free trial is available to everyone else. Just go to ft.com unhedged offer I'm Rob Armstrong. Thanks for listening.

[Stephanie Flanders]

Donald Trump has already changed the way we think about the US economy. Now he's back in the White House and Bloomberg's trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Whatever the big question of the week is, we'll have something interesting to tell you about it in a lively conversation with the reporters and analysts closest to the action. Listen to new episodes every Wednesday, and follow trumponomics on Apple Podcasts, Spotify, or wherever you listen.