Walmart (NYSE:WMT) stock rallied after clocking in some incredible Fiscal Q1-2025 numbers that sparked one of its best single-day rallies in years. That’s not bad for an old big-box retailer in the new age of tech. As Walmart continues betting big on its e-commerce redesign, expansion of Walmart+, and product innovation, among other intriguing moves, a strong case could be made that WMT stock deserves to trade at a much higher multiple after its recent gains with higher-income consumers; perhaps one that’s more reminiscent of Costco (NASDAQ:COST), which trades at 50 times earnings.
Either way, I wouldn’t bet against the $530 billion retailing colossus here, as its recent run may just be getting started. At writing, Walmart stock is trading at 28 times trailing price-to-earnings (P/E). That’s certainly quite a high multiple for Walmart standards but one that’s still worth paying, given the bright spots in the company’s latest quarter. Moving forward, I expect the firm to double down on the efforts that ultimately led to a remarkable start to its fiscal year.
Richer Customers Shopping at Walmart, But Walmart Needs Them to Stay
Walmart isn’t just making impressive market share gains; it seems to be seeing an uptick in more affluent households, specifically those pulling in at least $100,000 yearly. Such richer customers helped Walmart achieve a rise in U.S. comparable store sales (or comps) by almost 4% in the last quarter. As you may know, the upper-middle-class customer is more Costco’s turf than Walmart’s.
Though only time will tell where the well-off demographic takes their business in future quarters, my guess is that the recent surge is not just a mere outlier that’s to be ignored. Further, Walmart may have an opportunity to spruce things up a bit to become a more “upscale” place to shop.
Notably, former Walmart U.S. CEO Bill Simon recently cautioned that wealthier consumers may take their business elsewhere once inflation returns back to normal. And after a pretty tame personal consumption expenditures (PCE) inflation figure (up 2.7% year-over-year in April), it certainly seems like the days of high inflation are coming to an end (thank goodness). However, I still view Walmart as having many tools that could help it retain the richer crowd it has welcomed in its doors recently.
Even as food price deflation becomes the name of the game, Walmart still stands to be the cheapest place to shop. But richer customers may not care about price as much as quality and convenience once inflation makes its round-trip back to (or even slightly below) 2% in coming quarters. And although Great Value (Walmart’s low-cost private-label brand) presents great value, it’s no Kirkland Signature (a Costco private label) when it comes to quality.
Not to discount quality improvements made by Walmart’s cheapest private-label food brand, but it’s clear that Walmart needs to charge a bit more if it wants to boost the quality factor markedly higher. In short, Walmart needs some better goods, and it’s offering just that with its newest private-label brand, Bettergoods. The brand isn’t necessarily targeting higher-income consumers, but they do seem to be channeling quality and innovation more than just seeking to drive down prices to the floor.
Bettergoods: The Kirkland Signature of Walmart?
Initially, there will be just north of 300 Bettergoods products, many of which are still quite affordable at less than $5.00. Whether we’re talking cardamom rose raspberry jam or toasty salsa, it’s clear that such goods are unique-sounding enough to be considered a must-try, especially if one finds themselves with a bit more cash to splurge on something other than the cheapest possible item in a product category. Personally, I’m a big fan of the Bettergoods announcement. Still, I wouldn’t dub the brand as the new Kirkland just yet.
Either way, I view such an addition to the Walmart brand roster as a potential tool to help keep the wealthier customers coming back. It’s clear Walmart has a formula that’s drawing in crowds, whether it be through its enhanced grocery-delivery service, the much-improved e-commerce platform, the value of the Walmart+ subscription (or Walmart Delivery Pass in Canada), or the wide selection of low-cost goods that help customers beat inflation.
The big question now is whether Walmart can position itself more competitively with a premium low-cost retailing heavyweight like Costco while retaining lower-income consumers. On the low-income front, Walmart has no issues with its outstanding value proposition (its Great Value brand is markedly cheaper than the big brand names) and the optionality of its membership program.
However, I think a Walmart+ subscription brings further value to the table, even for those consumers who are just getting by. Undoubtedly, the main star of Walmart+ has to be the free delivery of groceries ordered from the digital platform.
Over the years, Walmart has quietly powered ahead with its e-commerce prowess since bringing on the slew of talent from its Jet.com acquisition made all the way back in 2016. Though Jet.com shuttered four years after the deal was struck, the talented folks brought aboard have really helped leave long-lasting changes while directing the e-commerce team in the right direction.
Whether we’re talking about a more intuitive web and mobile interface, enhanced data collection to improve (and personalize) the customer experience, or quick and easy access to weekly flyers and coupons, Walmart’s digital storefront has improved by leaps and bounds over the years, perhaps by enough to close off much of the gap with its top rival Amazon (NASDAQ:AMZN).
With the ability to offer quick and efficient grocery delivery, Walmart’s e-commerce platform now has something that even Amazon lacks: strength in grocery deliveries. With Walmart+ thrown in, perhaps Walmart finally deserves a gold star for catching up in the e-commerce race without skimping on its brick-and-mortar presence.
Is WMT Stock a Buy, According to Analysts?
On TipRanks, WMT stock comes in as a Strong Buy. Out of 28 analyst ratings, there are 24 Buys, four Hold recommendations. The average WMT stock price target is $71, implying upside potential of 5.8%. Analyst price targets range from a low of $65.00 per share to a high of $75.00 per share.
The Bottom Line
On the middle-to-high income front, Walmart looks a heck of a lot more competitive with its Bettergoods products, which will probably be well worth the extra buck relative to the Great Value brand. Add the solid e-commerce and delivery capabilities into the equation, and Walmart may just have what it takes to nip at the heels of Costco and other rivals that higher-income consumers love to shop at.
Heck, the convenience factor may be Walmart’s key to taking more share, given the absurd crowds over at the local Costco amid inflation. If anything, it’s quite inconvenient to head over to the local Costco during the weekend, as consumers from the area seek out bulk bargains.
Still, don’t expect new customers, especially wealthier ones, to stop shopping at Walmart now that they’ve discovered the deals, the added convenience, and improved quality standards.
