How did Walmart's share price outperform Amazon?

Supermarket giant Walmart [WMT] has beaten forecasts by reporting strong Q3 earnings results on 14 November. The news, delivered before trading had started for the day, forced a spike in the retailer’s share price, which opened up 3%. In the year to 21 November, the share price is up 30.8% at $119 ­– and massively outperforming one of its prime competitors. Amazon’s [AMZN] share price, over the same period, has risen just 18.4%.

Walmart and Amazon have increasingly been going head-to-head as the former looks to boost its digital sales and the latter seeks a piece of the potentially lucrative online grocery market. Walmart appears to have stolen a march based on its latest results, although this battle is a long way from being won. Is now time to buy the stock?

E-commerce sales boost world’s largest company

Walmart certainly feels optimistic, saying in its recent earnings announcement that it’s “prepared for a good holiday season”.

Walmart’s sales for the quarter were up 3.2% year-on-year, while revenues had increased by 2.5%, or $3.1bn, hitting $128bn for the quarter. The real headline grabber, though, was a 41% growth in US e-commerce sales, with the retailer already offering grocery collection from more than 3,000 stores and delivery from more than 1,400 locations. It’s planning to increase these numbers further by the end of the year.

Walmart has rolled out its unlimited delivery grocery membership offering to multiple locations across the US and its InHome Delivery service already has a catchment area of more than one million customers.

In the management commentary accompanying the Q3 results, CEO Doug McMillon said the e-commerce team had improved gross margins compared to a year ago through “improvements in merchandising mix” and “leveraging operating expenses”.

Looking at the competition

As previously reported, Amazon’s share price experienced the lowest growth among FAANG stocks in October, falling by close to 10% in after-hours trading on 24 October following the release of its Q3 figures.

The company’s earnings per share fell short of expectations, coming in at $4.23 compared to the $4.62 expected, according to Refinitiv. Revenue of $70bn beat expectations of $68.8bn, but this wasn’t sufficient to impress investors because of poor revenue guidance for the upcoming holiday shopping season.

Walmart & Amazon share price vitals, Yahoo Finance, 25 November 2019

Shoppers getting bored with Amazon?

Data released by First Insight, based on a survey of retail customers over the last two years, suggests the novelty of shopping on Amazon may be wearing off.

The survey found that the percentage of customers who bought items on Amazon six times a month or more had halved between December 2017 and September 2019, from 80% to 40%. The customers surveyed were a combination of Amazon Prime members and those who haven’t signed up for the subscription service, although the survey also found that Amazon Prime membership had fallen from 59% in 2018 to 52%.

Most notably, more than half (55%) of the shoppers surveyed this year said they preferred to shop at Walmart rather than Amazon, compared to 47% in 2018.

Is imitation the sincerest form of flattery?

Walmart has replicated some of the promotions that Amazon has pushed to its customers this year, most notably by introducing next-day delivery on a wide range of products and same-day grocery delivery subscriptions.

Walmart has also announced that the grocery sections of its stores will be redesigned with wider aisles and a section devoted to organic produce. The company says the change will make it easier for staff to stock these sections and give them more time to serve customers. However, it has been suggested that if the lighting was dimmed and the colours darkened, the new grocery sections would bear more than a passing resemblance to Whole Foods, which is of course owned by Amazon.

Jharonne Martis, director of consumer research at Refinitiv told CNBC’s Squawk Box that customer loyalty continues to drive positive growth at Walmart and that the retailer is “doing a really good job at the integration between online and physical stores.”

According to Nigam Arora, founder of market blog The Arora Report, there is a clear path for Walmart to grow earnings by 20% in the next three to four years, which he says “is more than what is currently factored into the stock price.”