Wal-Mart thrives in economic storm

The pieces are all falling into place for a great year for the nation's top retailer.

By Kim Peterson Aug 6, 2012 4:44PM
What's the perfect scenario for Wal-Mart (WMT)? Try a combination of stagflation, low gas prices, a U.S. election year and consumer skittishness.

The ingredients are all there, and that's why analysts with Stifel Nicolaus have upgraded the stock to "buy." The company will succeed even in a slowdown in consumer spending, analysts said.

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Investors have clued into this for months now. That's why, after languishing for years, Wal-Mart shares have shot up 46% in the last year to close Monday at $74.28.

In some ways, Wal-Mart will see a repeat of 2008, a year in which Americans felt the pressure of high gas prices, food inflation and a crumbling housing market. This year isn't an exact repeat -- gas prices are low and the housing market is slowly recovering -- but there are other factors weighing heavily on consumers' minds. Some tax cuts are set to expire at the end of the year, and federal spending cuts may take place weeks later.

Wal-Mart did well in both years. Stifel analyst David Schick said his company's survey showed that more people are making weekly visits to the store. He upped his earnings estimate for the second quarter to $1.20 per share from $1.17 a share, and also hiked his full-year estimate to $5.09 a share from $4.97 a share.

He thinks the company's share price could rise to $83 in the next year.

Wal-Mart went into a spiral after 2008. It reacted to the recession badly and made some unwise moves aimed at grabbing wealthier customers that may be trading down. It cut its selection, rearranged its aisles and upped some prices. It was blindsided by the consumer shift to dollar stores for household goods. It continued focusing on super-sized bundles when shoppers couldn't afford them.

As a result, U.S. sales slumped for nine straight quarters. Management finally reversed that trend by making some key decisions, such as dumping its promotional pricing experiments and returning to its "everyday low pricing" model.

The new strategy is working. Gas prices are low, giving lower-income shoppers more cash to spend. Shoppers are very price-focused in this election year. And finally, Wal-Mart is benefiting from the management problems at JC Penney (JCP) and Sears (SHLD).

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284Comments
Aug 6, 2012 7:37PM
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Wal-Mart thrives because they sell the lowest quality products in the world and thanks to corruption within the federal government, spanning decades, that is all that Americans can afford.  It doesn't get any simpler than that.
Aug 6, 2012 11:04PM
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 I wish NBC could afford a spam filter / blocker .
Aug 7, 2012 12:02AM
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I was JUST at Walmart and do you want to know how they are thriving? They don't have any f'n people manning their 40 checkout lanes.  They have 3 or 4 lanes open and there are lines around the corner.  Their "customer service" department has ONE person and i literally stood in line waiting to return an old battery for 30 mins just to be told that they cant give me the 9 bucks because the cashier didn't give me the right receipt for the new battery i just bought...at this point i just wanted to get out of there asap.

Their carts are sticky, the wheels on EVERY cart are busted up and you make a racket when you're going through the store.  I have to consciously remember NOT to touch my face because there are no wipes to clean the handle of the carts when you get one, otherwise i'm sure i'd get sick the next day.  I was there once and saw what appeared to be smeared sh!t in one of the isles and i would have continued to think it was if it wasn't for the lack of smell.  Some lady almost stepped right in it because she was too busy texting on her "dumbphone" before i warned her.  There was also a busted open tube of crescent rolls or something that looked as if it had been kicked around on the floor all day without anyone bothering to pick it up and put it in the trash can that was 10 feet away till i came along and did it.

They could hire more cashiers but that's not good for their penny pinching bottom line.  The people that work there look depressed and overworked, and most of the people that shop there push the limits of what is defined as being a human both in intelligence and appearance.

Walmart is a dump plain and simple and i dread having to go there for anything.

Aug 6, 2012 7:23PM
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It's not that they envy success, it's that Walmart closes small businesses. They provide imports at the rate of about 93%...not much is made in America. I don't boycott Walmart, It was always an economical place to shop, but it came with a price for small time local business owners.
Aug 6, 2012 7:54PM
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I would rather do my shopping at Meijers - which has a high percentage of American-made goods. Yes, they might cost a little more, but I know by shopping there I am helping my country folk, instead of lining the pockets of some multi-billionaires who are so quick to sell out their own people in the name of exploiting cheap overseas labor.

Sam Walton made Wal-Mart, his children made it a sweat shop.

Aug 6, 2012 10:33PM
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The Article states gas prices are low at least 2 times. .  Where do you buy gas?   It  seems to be near an all time high in Missouri where I live.    Wal-Mart's low prices are only lower when the same item is not on sale at any other store, if you shop around you can always find prices as low or lower the Wal-Mart and you will help keep compitition, to keep the WalMart monopoly in check.   Shop around,  you can find better prices and better merchandise any day of the week.    The cheapest price for a lower quality item does not always mean the best product for you..   

Aug 6, 2012 8:06PM
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The article starts out by saying low price gas  ? 3.60 national average ... WHAT THE HELL .

Aug 6, 2012 6:09PM
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Walmart will alway do good, because the american shopper shops price first,last and only, and doesn't care about quality, or how well stores look.  Walmart cuts it's prices, because it can force venders to give it extra brakes, and can keep it's payroll down.  They give the American public what they want. 
Aug 7, 2012 6:59AM
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WELFARE or WORKFARE?

Try going to China, Korea, Japan or ANY other country in the world and ask for food stamps and welfare! Are you kidding me! It'll NEVER HAPPEN. Yet we continue to give away free cash to all these illegal immigrants as well as all the lazy **** Americans who don't want to work and live off the generosity of our tax paying citizens. We are supporting the drug and alcohol habits of all these s****ing maggots and they just keep multiplying like roaches because hey know the more they multiply, the more money they get.

If we only made these people become constructive and work for their foodstamps and free handouts, we could again compete with these other countries as far as production of consumer goods as well decreasing our dependance on foreign goods, which would also help reduce the slave labor in other countries as well. And any imports that continue to come into this country should be highly taxxed, with AMERICAN companies getting tax incentives to operate and produce efficiently and competitively.

With that, all these MegaStores that are thriving on the cheap foreign product might once again have competition and the Mom & Pop stores that this counrty was built on will resurface, bringing this country back to it's glory day of domination in production and GNP (Gross National Product).

Aug 7, 2012 5:08AM
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I'd like to know where the author is buying gas. I'd hardly say "gas is cheap" right now.
Aug 6, 2012 7:40PM
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Of course they're succeeding. Everybody needs essential items such as: toiletries, food, cheap clothes, kitchenware etc etc... Thats why companies like Procter and Gamble are so successful, it's because no matter what condition the economy is currently in, people will always need those items. 
Aug 6, 2012 9:21PM
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Walmart thrives because they take out profit losses on their employess: making them work multiple departments untrained, cutting their hours, understaffing, and cutting their benefits.
Aug 7, 2012 7:24AM
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LOW Gas prices??? Where???  And compared to what??  2008 Gas prices average $1.78.  Now they are around $3.60.  What kind of math is that?  Stick to the facts and stop spreading lies!
Aug 7, 2012 12:53AM
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"This year isn't an exact repeat -- gas prices are low."  Is this guy living in the sam country we are?  Gas prices have nearly doubled since 2008.  It took somethng like a hundred years for gas prices to go from 5cents a gallon to $1.80 a gallon and less than 4 years for it to go from that price to nearly $4 a gallon.
Aug 6, 2012 10:10PM
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I am not a Walmart fan, specifically because they drive local companies out of business, especially in small-market towns like the one I live in.  But the fact is that people are struggling to survive, and not just the deadbeats, low-lifes, or the chronically poor, but also the middle class who have lost jobs, seen their retirement evaporate, etc.  Can you really blame people for looking for the lowest price on things that are essential for survival?  Even though the gap between Walmart prices and those of other store is shrinking, they still have the lowest prices on a lot of stuff, like it or not.  You can make a stand against Walmart based on principle, but if you need to feed your kids or buy essential items on an extremely limited budget, principle takes a back seat to need.
Aug 6, 2012 11:01PM
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Walmart, thriving? Perhaps. However, take a really good look at the stores. Inside them. Chat up some of the sales associates. Pay attention to who works there, and if they have badges with years worked on them. i did work for them for a while, so perhaps I see more than most people.
The turn-over rate of employees is high. I have even seen ads for workers in the local paper. And yet people are looking for work. Why not at Walmart? 

Just a snap shot here. While I was there, (and things were better then, about a year ago), there were never enough cashiers. Never. And we worked hard. You were videotaped, and your production was monitored through the register. Customers were unhappy and so were we. There are never enough sales associates. Try finding someone to help you with jewelry, pets, hardware.

If you go there fairly often, check out which lanes are open, and which are not. You'll see that some lanes are never used. That is because the scanner, the register, or card scanner isn't working. And it doesn't get fixed. Why? And there IS a lot of talk about the Made in China labels. We don't like selling these products, we'd rather sell American. Why can't that be done? People buy there because that is what we can afford these days. Myself, I buy my staples at Aldi's first, then Walmart, and then anything else at my local grocery.

if you do talk to some sales associates on a regular basis, you'll find that not only are there only part time jobs, your hours are all over the place so that you can't have another job. You need two jobs to make it if you ar young, if you have kids, if you are older (no more greeters), if you have medical bills.

There are problems within, and I would be cautious about their stock.   

Aug 6, 2012 10:11PM
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gas prices are low compared to 2008? huh? what? i paid 4.25 today in crook county illinois.the housing market is slowly recovering?where? somebody needs to proof read their facts before they print them.
Aug 7, 2012 6:35AM
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Companies like Wal-Mart, Target, Kroger and ShoppersValue will only get better as the middle class gets weaker and has less spending power, not so much because of inflation, for that has been dropping since the 80's, but because of lower wages and benefits.  The American consumer would like to buy better quality, but just can no longer afford it.  Like it or not America has entered the stagflation zone, and it will take tax reform and more government spending to pull us out. 

 

That could possibly change as Chinese labor becomes more expensive, but countries like India, Pakistan, Brazil and Bangladesh will always be there to provide a cheaper work force so I wouldn't hold my breath for dramatic wage increases in the U.S. anytime soon.  It's not only in the U.S. but EU workers are suffering the same fate with low wages, high unemployment and a banking system determined to take it all. 

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Where are those low gas prices the article keeps mentioning?  $3.45 a gallon in Huntsville, Alabama isn't exactly low--this is more than we were paying four years ago.  Loving that "hope and change".
Aug 7, 2012 8:40AM
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"Gas prices are low"?!  What state do YOU live in where the gas prices are low?  I want to know so I can move there!
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