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Wal-Mart (WMT) Extends Lead over Exxon in Fortune 500 List

As per the Fortune 500 annual rankings based on total revenues in the fiscal year, Wal-Mart Stores, Inc. WMT has topped the list for the fourth consecutive year. Wal-Mart was followed by Exxon Mobil Corp. XOM, Apple Inc. AAPL, Berkshire Hathaway Inc., McKesson, UnitedHealth Group, CVS Health, General Motors, Ford Motor and AT&T.

Fortune has been ranking the companies on their revenues for the last 62 years. The companies on this list represent about two-thirds of U.S. GDP and employ 27.9 million people.

Wal-Mart operates more than 11,500 retail units under 72 different banners in 28 countries and e-commerce websites in 11 countries. Wal-Mart’s stores offer almost everything which is of day-to-day use, enabling it to keep the number one spot on the Fortune 500 list for the fourth year in a row.

Wal-Mart produced revenues of $482.13 billion in fiscal 2016, almost flat compared with fiscal 2015 revenues of $485.6 billion. However, Wal-Mart’s sales were way ahead of the second-largest Fortune 500 company Exxon, which generated revenues of $246.2 billion.

We note that the Bentonville, AR-based company is facing severe challenges and has been showing signs of acute weakness since the past few quarters. However, the retail giant is making efforts to understand the evolving needs of its customers to regain their confidence, and thus boost sales. Let us look into the company’s strengths, which are pushing up sales.

Improved Consumer Spending Leading to Positive Comp Sales

Wal-Mart is seeing positive comps at Wal-Mart U.S. for the past seven quarters, after delivering negative comps since the third quarter of fiscal 2013. Traffic improved for six consecutive quarters, owing to the company’s efforts to modernize its stores to boost traffic. Traffic also increased due to moderate improvement in consumer spending. Lower gas prices have eased consumer spending power a bit, the impact of which is seen in improved traffic at stores. Many of the U.S. customers are also using their tax refunds in shopping. Wal-Mart’s efforts to change its stores as per consumers’ demand helped the retailer attract some of the shoppers. In fact, the company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2017.

Increased Investments in Technology and E-Commerce Activities

Wal-Mart is aggressively investing in its e-commerce business in order to improve customer service and to compete with the biggest online retailer Amazon.com AMZN.

The largest grocer in the U.S. is already expanding its online order options to offer grocery deliveries within two days for a $49 minimum annual fee through its ShippingPass e-commerce subscription program. The program competes with Amazon’s Prime service, which costs $99 annually.

In April, Wal-Mart reportedly expanded its free curbside pickup of groceries to eight cities including Kansas City and Austin. Besides grocery delivery, Wal-Mart is also seeking drones for delivery and to manage warehouse inventories in the U.S., following the footsteps of Amazon.

Wal-Mart has also launched its own mobile payment system called Walmart Pay that will allow shoppers to pay through its existing smartphone app.

Wage Hikes

Being the biggest private employer in the world with over two million employees, Wal-Mart has always been keen on expanding employment opportunities, be it in its stores or Sam’s Club. Further, Wal-Mart has pledged to invest $2.7 billion on raising employees’ wages and give them extra training in fiscal 2017. Under the initiative, Wal-Mart increased its minimum wage to $9 an hour in Apr 2015, and to $10 per hour in Feb 2016.

Along with pay raises, Walmart and Sam’s Club have launched new short-term disability and simplified paid time off (PTO) programs in Jan 2016 that will streamline paid vacation, sick time, personal time and holiday time into one category. These changes will expand support for associates dealing with extended health issues and provide them greater control over their paid time away from work.

In addition to the investments in associates, the company also plans to better understand the fundamentals of retail and better manage the business. As a result, it strives to reduce comp store inventory and improve in-stock performance.

Bottom Line

While increased investments in technology and an increase in pay for its workers are helping boost sales of the Zacks Rank #2 (Buy) company, it is also increasing its expense burden. Higher labor costs along with the company’s efforts to overhaul its stores and invest in its online operations will weigh on its earnings in the near term.

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