Walmart
has been busy. Within the last 24 hours, the retailer announced its first stock split since 1999 and an aggressive expansion of stores in the U.S.
Walmart
declared a 3-for-1 split Tuesday night. Then Wednesday morning, the company said it was planning to build or convert more than 150 stores within the next five years—on top of remodeling 650 stores over the next 12 months.
By the end of this year, Walmart expects to open 12 new stores, as well as turning one smaller location into a Supercenter. The company currently operates about 4,700 locations in the U.S., according to its latest annual filing.
Walmart didn’t specify how much it was spending on building the new stores, but said the efforts “represent millions of dollars in capital investment of labor, supplies and tax revenue.”
Walmart stock ticked up 0.1% to $165.87 in early morning trading Wednesday. Concerns that the store investments would weigh on the company’s performance appeared to temper investors’ enthusiasm over the stock split.
Both announcements came as a bit of a surprise to the market.
In recent years, Walmart has leaned toward taking a conservative approach to new store openings, opting instead to invest in building its digital infrastructure. In fact, the company has closed more stores than it has opened over the past couple of quarters, including several stores in Chicago.
But Walmart’s pivot suggests that the world’s largest retailer is thinking differently about its physical footprint in the wake of the pandemic.
Consumers returned to in-person shopping with gusto—albeit with new demands for retailers, such as seamless in-store pickup and more in-store customer service. Walmart’s new stores aim to cater to that demand. Stores are also turning into key components for retailers’ delivery infrastructure, serving as fulfillment and distribution centers.
The stock split was also unexpected, given that the company hadn’t split its stock since 1999.
Under the current plan, all shareholders holding the stock by the end of the trading day on of Feb. 22 will receive two additional shares of common stock for each share held. The new shares will be issued after the market closes on Feb. 23, and will begin trading Feb. 26.
“We view the [split] announcement as another positive signal of WMT management’s confidence in the company’s longer term prospects, even as the backdrop could turn deflationary for periods of time in 2024,” wrote Oppenheimer analyst Rupesh Parikh in a Wednesday note. He has an Outperform rating on the stock and a $175 price target.
Walmart expects the number of outstanding common shares to jump to 8.1 billion from approximately 2.7 billion shares.
Companies often perform a stock split when they feel their share price has gotten too high to attract investors. In a split, the company breaks up existing shares to create a higher number of lower-value shares, making it more affordable, especially for small or retail investors. It also increases liquidity by making more number of shares available for trading.
“A psychological barrier might occur with trading high-priced shares,” notes the Financial Industry Regulatory Authority, a private self-regulatory organization. “A very high stock price can intimidate investors who fear there is little room for growth, or what is known as price appreciation.”
It’s worth noting that the split itself doesn’t create any additional value for the company — meaning Walmart’s market capitalization isn’t going to change after the split, nor will it dilute an investors’ stake in the company. As Barron’s described in the past, the split is comparable to exchanging a $20 bill for 20 singles.
Walmart on Tuesday said it hopes the split will encourage its employees to purchase shares. The company runs an employee purchase plan that makes it easy for them to buy stock, including by providing a 15% match on the first $1,800 employees spend each year. Currently, over 400,000 employees participate in the plan.
“Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates,” said CEO Doug McMillon. “Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.”
Write to Sabrina Escobar at [email protected]
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