Walmart’s Decline in the Stock Market | Local retailers in better shape

According to Desjardins Securities, Canadian grocers and heavyweights like Canadian Tire and Dollarama should avoid as much as possible the pitfalls that Walmart is currently experiencing in the United States.

Posted at 6:00 am

Andre Dubuc

Andre Dubuc
The press

The American giant, often considered a barometer of retail sales vitality, revised its Q2 resultse quarter and its forecast for the full year. The giant’s stock also fell 7.6% on the New York Stock Exchange on Tuesday. It’s clear that American consumers, drained by high food and gas prices, are reducing their spending on clothing, we at Desjardins Securities (VMD) believe.

“Concern at Walmart is partially confined to the United States, as the retailer there benefited from high spending by low-income consumers last year, helped by generous stimulus checks. We believe this situation will be less intensely experienced in Canada,” Chris Li and Milad Marvasti wrote in a note to investors released Tuesday.

Canadian tire

For the retailer with the red triangle, VMD notes that the stock’s current valuation (at 8.6 times future earnings versus the historical average of 12 to 13 times) already accounts for fears of a slowdown in earnings growth.

Canadian Tire’s diversification of product categories (automotive, household, seasonal, repair and leisure) should help mitigate the impact of a slowdown in consumer spending.

Desjardin’s securities

In addition, during the conference call on January 1, managementah quarter in May than consumer demand since the start of Q2e quarter has remained healthy despite high sales prices and the margin management through various instruments (own brands, price optimization, etc.) has proven to be effective.

Subway, Loblaw, Dollarama

Grocery retailers can pass on the rise in input prices to end consumers with high food price inflation of 8% yoy in June.

Walmart’s results on these grocery products validate the popularity of discount brands in an inflationary environment, claims VMD.

this trend [inflationniste] should favor Loblaw and Metro due to their relatively higher exposure to discount brands, which account for about 60% and 40% of sales, respectively.

Desjardin’s securities

The two analysts do not expect a price war in this context. For Walmart, for example, attractive sales volume in grocery products becomes valuable to cover weakness in apparel and general merchandise. “We believe this should encourage rational competition,” they say.

This context should also favor the progress of Dollarama and VMD, according to a recent price survey conducted by Desjardins. The store chain thus offers 40 to 50% lower prices than Walmart and Amazon.

Gildan

The sock and T-shirt manufacturer is not a retailer, but its fortunes depend on that of American distributors such as Walmart, with the United States being its main market.

Gildan’s stock has certainly fallen to nine times future earnings, compared to a historical average of 15 times, but volatility remains the order of the day in the coming months, VMD warns.

In mid-July, the Haitian subsidiary S&H Global of the South Korean textile group Sae-A, the subcontractor supplying notably Gap, Target and Walmart, announced the shedding of 4,000 jobs (40% of its workforce) by the end of the 20 year due to the recent economic downturn on the US market.

According to AFP, subcontracting companies are the most important provider of formal jobs in Haiti, employing almost 50,000 people.

invited by The press To clarify the status of its operations in Haiti, Gildan’s spokesperson assured in an email that “production volume in Haiti has been relatively stable since early 2022 and [qu’il est attendu] that it stays pretty much the same for the rest of the year. »

Gildan does not subcontract production to Sae-A in Haiti. However, the company uses other subcontractors in the country who assemble some of the textiles produced in our Dominican Republic factory into finished garments.

Geneviève Gosselin, Director of Global Communications at Gildan

“We will report our second quarter results on August 4, at which time we will provide updates on our activities and the development of the business environment,” continued Geneviève Gosselin, Director, Global Communications.

With Julien ArsenaultThe press

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