Morgan Stanley: Walmart's Slowing E-Commerce Growth Is Cause For Concern

Walmart Inc WMT has made some major strides in beefing up its online sales business to compete with Amazon.com, Inc. AMZN. However, Walmart's most recent quarterly earnings report suggests the company still has plenty of improvement to make, and one Wall Street analyst said Monday that Walmart has a lot to learn from Amazon.

The Analyst

Morgan Stanley analyst Simeon Gutman reiterated an Equal-weight rating for Walmart and reduced the price target from $106 to $99.

The Thesis

Walmart lost business during the holiday shopping season because its online infrastructure wasn’t equipped to handle peak demand, Gutman said. (See the analyst's track record here.) 

“WMT's execution issue suggests 1) its infrastructure is inadequate or 2) it has yet to harmonize its omni-channel assets (3,600 Supercenters, 22 e-commerce dedicated FCs), particularly during peak demand season." 

Amazon had a similar problem back in the fourth quarter of 2015. In that quarter, Fulfilled By Amazon centers reached full capacity, which resulted in higher labor costs, slower deliveries and lost business, according to Morgan Stanley. 

As a result, Amazon beefed up its fulfillment center infrastructure by roughly 50 percent over the following two years. Walmart’s issue doesn’t seem to be capacity, but rather mismanagement during peak demand periods, Gutman said. 

Regardless of whether the issue was capacity or management, Gutman said spending money is the key to solving the problem for Walmart. The Bentonville, Arkansas-based retailer needs to beef up its software and/or logistics and/or fulfillment center capacity to avoid repeating the online sales slowdown it reported last quarter, the analyst said. 

Price Action

Walmart stock traded was down 0.25 pecent at $92.64 in Monday morning trading and is down 12.8 percent in the past month.

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