Wal-Mart Stores Inc. (WMT) Issues Disappointing Guidance. What About the Dividend?

In other words, Wal-Mart’s growth will increasingly depend on same-store sales and the company’s e-commerce activities. Additionally, fewer store openings reduces the company’s capital expenditures, driving free cash flow higher.

With over 90% of Americans already living within 10 miles of a Wal-Mart store, these actions should hardly come as a surprise.

Wal-Mart’s playbook for the next decade is certainly very different from the last. The company clearly realizes the importance of e-commerce and knows it is years behind Amazon.

I view Wal-Mart’s recent $3.3 billion acquisition of Jet.com, a fast-growing e-commerce business, as a sign of desperation to step-up its own digital capabilities.

Despite pouring billions into its loss-making web business, Wal-Mart’s online sales growth has slowed considerably over the last two years (Amazon continues reporting double-digit growth despite doing more online business than anyone else):

Source: Bloomberg

Acquisitions often have many unintended consequences, and the relatively small scope of Jet.com hardly makes it look like Wal-Mart’s knight in shining armor. Jet.com’s revenue projection for 2020 is still a fraction of Amazon’s and eBay’s current sales.

Source: Bloomberg

Nonetheless, Wal-Mart will continue to invest heavily in e-commerce, and this is ultimately the right move if it wants to keep its business relevant for the rest of the 21^st century.

However, it says a lot about Amazon’s edge when the largest brick-and-mortar business in the world is finding itself so challenged to build momentum in e-commerce.

Of course, as I previously discussed, Wal-Mart is also challenged by rising labor and health care costs.

With new store growth screeching to a halt, e-commerce activities looking like they will continue losing money for years, the brick-and-mortar retail environment as competitive as ever, and labor force costs rising, Wal-Mart sure has its work cut out for it to sustainably grow earnings over the next five years.

Until Wal-Mart shows clearer signs that it can (profitably) become a viable number two player to Amazon in the e-commerce world, it’s hard for me to get excited about the business.

Other brick-and-mortar stores are also racing against the company, and it’s crucial for Wal-Mart to assert itself as a legitimate online player if it doesn’t want to bleed away its 250+ million customers over the next decade.

What does this mean for the company’s dividend?