These 2 Retailers Have Pricing Power and That's Everything Right Now

The article argues Walmart and Ulta Beauty both have meaningful pricing power, with Walmart using its scale to dictate supplier terms across 10,900+ stores and Ulta leveraging a loyal customer base of millions of members. Walmart is highlighted as the stronger stock due to multiple growth drivers, including its ad business and Walmart+ membership, despite a forward P/E of 42.3. Ulta remains challenged by competition and a declining share price, though its expansion into Mexico and the Middle East adds growth optionality.

Analysis

WMT is the cleaner beneficiary because its pricing power is really a balance-sheet-level advantage: it can squeeze vendor economics while still taking share from middle- and upper-income households, which makes the margin story more resilient than the headline multiple suggests. The second-order effect is that suppliers selling into big-box channels will face a widening gap between branded and private-label economics, so the pain shows up first in gross margin compression for smaller CPG and niche brands before it becomes visible in retailer comps.

ULTA’s pricing power is more fragile and more interesting. The loyalty flywheel means modest price increases should be absorbed, but the larger issue is customer acquisition efficiency once the Target partnership rolls off: if traffic doesn’t get replaced, price elasticity will matter less than CAC inflation and lower visit frequency. In beauty retail, the real competitive risk is not a demand collapse, but mix drift toward mass and value channels, which can quietly pressure basket size over the next 2-4 quarters.

The market may be overpaying for WMT’s durability in the near term, but underestimating the optionality from ad and membership monetization over 12-24 months; those businesses convert traffic into higher-quality revenue without requiring much incremental square footage. For ULTA, the consensus may be too focused on near-term share weakness and not enough on whether international stores can become a call option on a still-underpenetrated category, though that thesis likely needs multiple quarters to prove out. In both names, the key catalyst is less inflation itself and more whether management can keep monetizing sticky demand while peers are forced into promotional behavior.

Key Decisions for Investors

• Long WMT vs short XRT for a 3-6 month horizon: the retailer that can pressure suppliers should outperform the basket if consumer trade-down persists; risk is a sharp rotation into smaller-cap retail on easing input costs.
• Sell cash-secured puts on WMT 8-12% below spot with 60-90 DTE: harvest elevated implied premium while expressing confidence that the business model limits downside; exit if valuation de-rates on any traffic slowdown.
• For ULTA, avoid outright longs until after the Target partnership rollover is absorbed; if shares overshoot on continued weakness, consider a 6-9 month call spread to capture a rebound in membership monetization with defined downside.
• Pair long WMT / short TGT over 6-12 months: WMT should capture share from value-seeking and higher-income shoppers, while TGT faces greater pressure to discount if traffic softens; stop if TGT shows sustained margin stabilization.
• Use any 10%+ pullback in WMT to add, but trim if the stock rerates further without corresponding growth in ad or membership revenue, since multiple expansion alone leaves limited near-term upside.