Avant’s Post

For much of this year, I’ve been commenting on the trade down effect beginning to happen in financing as one of the biggest trends shaping consumer finance over the past year.   Despite average credit scores rising, many people are being denied access to traditional credit as banks tighten underwriting standards, creating more of a market among well-qualified consumers for financing avenues that traditionally serve the nonprime segment, including products like lease-to-own. In this piece by The New York Times on Walmart's earnings, the research indicates that higher prices have drawn more high-income consumers to Walmart in search of less expensive goods. This squeeze adds yet another layer to the lack of financing available and creates a more detailed picture of the emerging pressures to consumer spending behavior overall. Some retailers are losing, but some, like the nation’s largest retailer, are benefiting from the change.   Retail, consumer finance, and the economy more generally are going through a phase shift. Liquidity pressure, inflation, tighter credit, and mounting uncertainty on rates are driving major changes and creating some real opportunity for those who can adapt. https://lnkd.in/eVtvW8p6 #retailsales #retailers #underwriting #lending #consumerspending #credit #inflation #economy

To say that 2023 has been an interesting year is an understatement. Lots of unpredictable political and financial factors clearly happening in the world right now. It's created an unease in markets, slowed commerce and has created tail winds for consumers heading into 2024. "As three of the nation’s biggest retailers kick off a key sales week, former Walmart U.S. CEO Bill Simon warns consumers are starting to buckle for the first time in a decade. He’s blaming a list of headwinds weighing on consumers including #inflation, higher interest rates, federal budget wrangling, polarized politics and student loan repayments — and now new global tensions connected to violence in #Israel. https://lnkd.in/gNz2R9mg

This is the primary reason traditional supply chain forecasting generated by excellent S&OP teams and most of Vizen Analytics competitors simply won't cut it anymore. #supplychain companies deserve a better way to foretell leading economic and demographic indicators and apply these trends directly to their supply chain planning. It's vital to stay proactive in case another 2020 or 2008 type impact hits us again. The retail bellwether Walmart saw "anomalous type of behavior" from customers which "made us sit up in our chair" about the health of the consumer and what the purchasing behavior was, Chief Financial Officer John David Rainey said at the Morgan Stanley Global Consumer & Retail Conference. Earlier on Wednesday, CEO Doug McMillon in an interview with CNBC said rising credit card balances and dwindling household bank accounts do raise questions about how much consumers will be spending. #demandforecasting #demandplanning #supplychainvisibility https://lnkd.in/g3Hk8xSd

On the economic front, which is my second major interest, it's been a fascinating couple of weeks. Stock market investors are celebrating lower inflation despite the very well understood and frankly planned reason for it, which is demand destruction. Inflation has been surprising on the downside -- though core inflation is still about 4%, because the economy is slowing more rapidly than expected (celebrate...). I've gained a fair amount of respect for Doug McMillon over the years, particularly with regard to success in grocery, pivot on e-commerce driven by Amazon threat, and healthcare strategy. (Another CEO who has been on our distribution list for EAI for many years). My interpretation is twofold. One is he's sending a not so soft message to the Fed that Walmart wouldn't be terribly disappointed if they eased a bit in coming months (deflation is a warning to the Fed), and secondarily he's sending a message to investors that it might get ugly in price wars over the next few months, and of course as the largest retailer and grocer, Walmart is positioned well to benefit. Bottom line is Walmart is one of the best ways to track the health of the American consumer. In recent years they've been moving up in demographics and capturing more market share in the middle income group as well, but still among the best ways to take the pulse of the American consumer, which is by far the biggest driver in the largest #economy in the world. What's happening appears to be precisely what I and others expected. A sharp slowdown in GDP in the 4th quarter and light to moderate recession in first half of 2024. Whether it will be two consecutive quarters of negative growth or not, we'll have to see, but I would not be surprised to see the U.S. economy bouncing above and below zero GDP in 2024. Despite the mention of deflation by Doug--and I believe him, I think this is only the beginning of the end of the first wave of inflation. The second wave, which tends to be more problematic, usually begins a few months to over a year after the Fed begins to loosen money supply. If memory serves, there has only been one inflationary spike in the past century that didn't result in a second wave, and the closest era to the current in the 1970s experienced several waves during the decade of stagflation. The 2024 election will be critical at this point in U.S. history given the situation. For the sake of the U.S. and world, I am hoping for a younger (under 70 😀), moderate POTUS who is fiscally disciplined, can unify the country, and get things done with Congress.

The current state of the economy has left consumers understandably perplexed, and it appears that major corporate leaders are equally confused about consumer trends. Predictions about U.S. spending for the remainder of 2023 and into 2024 vary among industry experts. According to Walmart, a useful barometer of shopping sentiment in the U.S. as a provider of both essential and discretionary goods, it’s a mixture of all of the above. But even Walmart is grappling with what the implications are for the next 12 months. John David Rainey, Walmart’s CFO, told the Morgan Stanley Global Consumer and Retail Conference that consumers behaved so strangely in October it made bosses “sit up in their chairs.” Read more: https://lnkd.in/gbN7Y39h

Amid unyeilding #inflation, #studentloan payment resumptions, and elevated energy prices, there are many factors impeding consumer spending as we draw closer to the holiday season. According to Brooke DiPalma in a recent piece for Yahoo Finance, large retailers like Costco and Walmart remain optimistic. How heavily retailers will need to rely on promotions and discounts to encourage spending, though, remains to be seen. #Retail #HolidayShopping https://lnkd.in/eXBdVsFY

Navigating the economic landscape in 2023: Consumer resilience takes center stage as the S&P 500 Consumer Discretionary index surges 40%, outpacing the broader market. Shifting from a 'buy now' to a 'consider before purchasing' mindset, consumers have dramatically impact big-box retailers like Target and Home Depot. Walmart's CFO, John Rainey, addresses the challenges of selective consumers, while industry experts discuss rising credit card delinquencies and weakening sentiment. Read more and reflect more on thisconversation regarding the evolving consumer landscape and its implications for businesses in uncertain times in the article below.   #ConsumerResilience #EconomicOutlook #RetailTrends #amsterdamassociates

In a recent note, I shared my thoughts on Walmart (WMT), the retail giant. Based on my valuation, I have rated the stock as OUTPERFORM with a price target of $78.6. There seems to be some decent upside at its current price. There has been some good news coming out of the company recently. Most important for me is the potential for "high-margin" revenues from advertising and data accompanying the growth in ecommerce ( they have begun to trickle in). Putting it all together, I think revenues will grow sustainably in the long-run at around 2.5% considering the fierce competition in the industry. However, short-to-medium term revenue growth could range between 4% y/y - 5% y/y ( compared with management's guidance of 3%- 5%) as ecommerce gains prominence. Of course, the U.S business remains the cash cow. Here are some key highlights from the short note. - WMT is trading on a '25f P/E multiple of 24.6x ( vs an industry average of 25.4x) for a ‘26f EPS growth of +11.9% y. - Walmart operates in a highly regulated and litigious environment. The costs associated with law suits are usually significant and could erode earnings visibly. In another vein, local currency depreciation presents a major downside risk to the valuation. Walmart’s operations in countries other than the U.S are conducted in each country’s local currency. However, consolidated financial statements are reported in US$ based on the prevailing exchange rate. - I like Walmart for its simple and largely transparent balance sheet. I raise brows at complex balance sheet structures littered with complex financial instruments. With respect to balance sheet health, Walmart has a moderately levered balance sheet with a financial leverage of about 2.8x, a net-debt to EBITDA ratio of 0.8x and an interest coverage ratio of 10.1x. Disclaimer: The views and opinions expressed in this research note are those of Oluwaseun Arambada, an independent analyst, and do not necessarily reflect the views or opinions of my past employers or affiliated organizations. This research note is for informational purposes only and should not be considered as investment advice. I am not responsible for any errors or omissions in this report.

Analysts at the Bank of American (BoA) have reiterated their ‘Buy’ rating and US$190 price target for #Walmart Inc (NYSE:WMT) on their strong near- and long-term outlook for the retailer. Walmart shares traded hands at US$156.56 early on Friday afternoon, down $6.4% week-over-week as investors retreated from the stock disappointed by its weaker-than-expected updated full-year guidance. The analysts see Walmart continuing to make share gains in grocery and general merchandise. “We expect grocery share gains and trade-down to continue supporting Walmart’s store and online transactions as consumers continue to manage grocery inflation, up 25% versus 2019, the reduction in Supplemental Nutrition Assistance Program (SNAP) benefits, and the return of student loan repayments,” they wrote. More at #Proactive #ProactiveInvestors #NYSE #WMT http://ow.ly/r9GC1052gqt

Walmart's stock price is down about 8% today. Why? Because it said that U.S. consumers are "acting more cautious" with their spending as the holiday season begins. Here's the story from Reuters: https://lnkd.in/gAWFrP_v While that may be true, there's still hope for any business that relies on end-of-year sales. We recently wrote about how private equity firms can use digital marketing levers to boost EBITDA across their portfolio companies — no matter the environment. We specifically use the example of how a $5,000 investment in creative testing could boost EBITDA by 43%. That's a nice return on investment, right? There's definitely hope for any business to maximize its holiday season IF it understands digital marketing's influence on EBITDA. Check the first comment for the link to our article. #privateequity #pe #retail