We can think of a dozen different variables about why Walmart (WMT) can report a terrific quarter like it just did. The leadership team, especially CEO Doug McMillon, is much stronger and centralized. The online business is now very much a part of the operation, integrated in a way that makes the Jet.com deal highly accretive vs. building a similar engine.
The closing of underperforming stores, including 102 Walmart Express stores, shows that the company is no longer going to layer on winning stores on top of losers. It's going to just cut them off, even though, in some cases, they haven't even been opened that long. Talk about being decisive.
But I think those are all losing the forest through the trees.
The single most important initiative that McMillon did was to pay people more. That's right, better pay. Higher benefits. Substantially better than many other companies.
That's causing a monster chain reaction that's keeping good employees rather than losing them, say, to Target (TGT) , or to a fast food company or any other national chain that could cherry-pick Walmart's best.
It's all part of that plan announced last year to boost wages by $2.7 billion over several years time, to get the wages above the national average -- an amazing thing for this gigantic company.
Why is this so important?
Because the biggest cost to a place like Walmart is training. If you are constantly training new people because the good ones leave, you very well could be spending away all of your gross margins.
That's why, when you see where Walmart improved -- working capital management, significant inventory improvement and time of payments -- much of that may stem from keeping really good people, especially the inventory issues.
Sure, we can say that this is all about sophisticated technology upgrades. And that plays a role. But it also may just mean that Walmart doesn't have that endless turnover that makes the stores poorly run on the ground, regardless of what Bentonville tries to do.
Remember Jim Sinegal, the former CEO of Costco (COST) , a stock that is in the Action Alerts PLUS charity portfolio, always said the secret to Costco's success was loyalty and a lack of turnover. That's what mattered. His training costs, he would say, could be as much as 30% lower than Walmart's simply because there aren't nearly as many new people to train because you are not losing older people.
Now, Walmart pays employees far less than Costco, with much lower benefits. So I am not trying to get people too excited about the dollar boosts. But you can't get this kind of huge improvement in free cash flow and operating cash flow, $5.0 billion year over year, unless you are getting more productive, and productivity with Walmart begins at the store level, with more satisfied employees.
And that's just what they got.
Random musings:
We have an amazing reader on Cisco (CSCO) today from Action Alerts PLUS ... Getting some buzz that this oil price level might be supported by Aramco as part of its ultimate prepping for its big IPO. ..Congratz to FillOrKill for getting out in front of the very big Vonage VG story ... If you haven't read Action Alerts Plus' analysis of the Internet of Things and NXP Semiconductors (NXPI) , you have to trial us.
