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Walmart Poised to Gain Competitive Advantage Through Quick Service Restaurant Partnerships, RBC Says

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Walmart Poised to Gain Competitive Advantage Through Quick Service Restaurant Partnerships, RBC Says

Walmart (WMT) stands to gain a competitive edge through its potential collaborations with fast-food chains and other businesses in the quick service restaurant industry, RBC Capital Markets said in a note e-mailed Monday.

Last week, the retail giant said it was adding express delivery service from in-store restaurants, beginning with Subway. Starting this month, customers in select states will be able to order Subway meals through Walmart's app or website, with the offering to expand to 1,400 locations by the end of the summer.

Walmart's management has been evaluating the viability of this service for six months and expects it to be rolled out to more quick service restaurants in the future, RBC said in a note to clients. The management has described the opportunity as "fourfold" as the retailer collects a fee on purchase, increases its mindshare and gains a competitive advantage over rivals that don't have a similar delivery network, according to the note.

The company also has the potential to increase traffic or basket sizes and benefit e-commerce economics, the brokerage added.

Walmart has yet to "materially" pass on high fuel prices to the consumer, though the move is "inevitable," if costs remain high, RBC analyst Steven Shemesh wrote in the note. During a recent event, management reiterated its expectations for fuel costs to grow to $250 million in the second quarter from $175 million in the prior three-month period, according to the brokerage.

"We believe price increases would disproportionately hit grocery relative to general merchandise, which we estimate could push food inflation to 2.5% to 3%," Shemesh wrote.

However, the retail giant "feels very good" about current price gaps and margin levers at its disposal, which should allow it to maintain or grow its competitive positioning, Shemesh said. The company could also receive up to $3 billion in tariff refunds, reflecting a potential "war chest" for reinvestment, the analyst added.

Last month, Walmart issued a downbeat fiscal second-quarter earnings outlook after posting better-than-expected revenue in the previous three-month period.

Price: $119.80, Change: $+0.92, Percent Change: +0.77%

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