For a company that is bigger than many countries, everything at Wal-Mart (WMT) is on a big scale. It just posted annual sales of $419 billion, which is unheard of for a single company. However, all is not well at the Arkansas behemoth. Growth has slowed down to a trickle and the stock has been a serious underperformer even in the midst of a strong bull market. Last year the stock was totally flat while the broader market posted solid gains. Can the company turn things around?
Lukewarm Quarter
The company reported earnings of $1.34 in its fourth quarter, which beat estimates by three cents, but a look under the hood reveals some troubling information. Its same store sales, which is a crucial statistic for retailers, fell 1.8%. This missed analyst projections and was the 7th consecutive quarter of declining U.S. same store sales. The quarter can be best summed up here:
“We are pleased with Wal-mart’s strong earnings performance for both the fourth quarter and the full year across our three operating segments. At the same time, we are disappointed by Walmart U.S. fourth quarter sales,” said Mike Duke, Wal-Mart Stores, Inc. president and chief executive officer.
The company is claiming that consumers changed their habits during the recession, like less credit, and more smaller purchases, but wouldn’t that actually help Wal-mart? The retail giant did well during the downturn as consumers gravitated to the stores due to low prices. I think that consumers are starting to open up their wallets more by going to other stores that they shunned when they were in frugal mode. Consumer confidence has rebounded strongly of late, largely due to rising stock prices, so people feel more flush to go to other more expensive places.
Wal-Mart has the financial strength to outlast any slump it experiences, but the trend of declining sales in the domestic market is surely keeping some of its executives up at night. I wouldn’t touch the stock here as I think it is dead money at best and has more downside at worst. Investors will need to see a few months and quarters of increasing U.S. same store sales to feel comfortable buying the stock again. Of course, if the economy tanks again, consumers might flock back to Wal-Mart’s bargains, but I don’t think anybody wants it to work out like that.
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