Wal-Mart the latest sign retail is reeling

The stock sells off on bad guidance. It's more proof that e-commerce is killing brick-and-mortar stores.

By InvestorPlace Jan 31, 2014 3:14PM

Wal-Mart store in Secaucus, New Jersey / Jin Lee/Bloomberg via Getty ImagesBy Jeff Reeves


Wal-Mart (WMT) just became the latest retail stock to disappoint investors.


Though the company won't report fourth-quarter earnings until February, it stated Friday that the quarterly numbers and full-year earnings will be worse than expected.


Wal-Mart did a little tap dance about Brazil-related charges and such, but the bottom line is still. . . well, the top line, actually.


Wal-Mart saw same-store sales slip last spring for the third consecutive quarter, and admitted in its November earnings report that holiday sales and subsequently its next quarterly report would likely be dismal . . and we just got formal confirmation of that Friday.


No wonder Wal-Mart is down 5 percent in the last six months vs. a 6 percent gain for the S&P 500. Back-to-back $15 billion buybacks can only get you so far in the face of struggling sales.


How bad is that struggle? Well, analysts were expecting 2 percent revenue growth across 2014 before this news. . . and the target could very well move lower, or WMT stock could miss that forecast when all is said and done.

Battered big-box stores

But don't make the mistake of thinking this is just a Wal-Mart problem. Most big-box stores simply can't compete in an age of continued economic weakness and massive e-commerce competition led by Amazon (AMZN).


Target (TGT) recently lowered its guidance, blaming troubles in the wake of a massive data breach. But the reality is that TGT has been suffering for a while, down about 7 percent in the last year in the face of the same sales issues as WMT.


In fact, 2014 sales are predicted to be even worse at Target with a single-digit decline forecast. Target's most recent guidance predicted a 2.5 percent sales decline for the fourth quarter vs. prior forecasts of a flat quarter, but don't forget that even before this breach the outlook was for zero growth.


Or take Best Buy (BBY), which on the surface has been a "good" retail stock since it more than doubled its share price in 2013. But this run has happened in the face of sales declines in five of the last six quarters, and expectations for another rough quarter after an ugly holiday sales report. My favorite statistic: Total revenue recorded in calendar 2013 is actually going to finish lower than calendar 2009.


I could go on. Macy's (M) saw sales grow by low single digits in 2014 and in 2014, for instance. And don't even get me started on Sears (SHLD) or JCPenney (JCP).


The bottom line is that more consumer comparison shopping online has forced brick-and-mortar retailers to compete with super-low prices -- gutting sales and gutting margins more. When you consider the higher overhead of staffing commercial real estate that has to appeal to big-city window shoppers instead of a bare-bones warehouse staffed by minimum wage package shippers . . . it's easy to understand the headwinds.


The few bright spots in retail

So where can an investor turn if they insist on buying some share of retail, either for diversification or because they want a long-term foothold in the industry with hopes of a consumer-driven recovery in the years ahead?


Well, specialty retailers with a good niche are a nice place to start. Consider auto parts retailers such as Advance Auto Parts (AAP), which is up 60 percent in the last year and 270 percent since early 2009. Some unique factors, including the fact that the average car on U.S. roads is more than a decade old and requires a lot of upkeep. Furthermore, it's difficult to imagine e-commerce ever completely supplanting auto parts retailers that ensure quick delivery to local repair shops.


Nobody wants to wait 10 days for a muffler to ship from an online discounter when they have groceries to buy and ballet recitals to attend.


Home Depot (HD) is another great example, since it is not at all burdened by the high capital costs of shiny retail storefronts. It's a glorified warehouse for contractors, in which the occasional DIY consumer wanders in with naive hopes laying bathroom tile in a straight line. While HD revenue growth is modest in the mid-single digits, any growth is substantive -- and its paint-spackled customers don't expect it to plow that cash back into stores with flashy redesigns.


HD stock is up about 15 percent in the last year, slightly lagging the S&P 500 but handily outperforming many other retailers. But some of that underperformance may simply be because the optimism has been baked in, with shares up 175 percent in the last three years to almost triple the S&P.


Last but not least, you can always go the e-commerce route with the evil empire of AMZN itself in your portfolio.


But tread lightly, because even Amazon is starting to feel the pain from this race to the bottom in prices in the constant war for shoppers.  The company is still growing nicely, but just missed revenue forecasts and guided down -- causing Amazon stock to tumble.


Frankly, I wouldn't really go near retail right now. But specialty retailers or AMZN are a better bet than most.


More From InvestorPlace

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities.

471Comments
Jan 31, 2014 3:51PM
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Simply put, the GDP numbers are false, the Unemployment numbers are false, and any information emanating from 1600 Pennsylvania Avenue is false.   If people are purchasing less there's your sign of how the economy is doing!
Jan 31, 2014 4:02PM
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Lets not forget about 40% of all groceries sold were paid for by us tax payers via food stamps! Yeah the economy is doing GREAT!!! 
Jan 31, 2014 4:05PM
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I don't know about the rest of the Wal-mart stores, ours in Wood Village Oregon is a pure mess, empty shelves, wrong prices on items, can't get threw main isles,very long lines at the registers, this is only part of the problem and no one will listen to the people shopping not even Corp. that's another joke. they are losing customers like crazy and they don't seem to care. The other day at 4pm there was 1 register open and some of the self service,that I won't use they are always broke down or cash only, anyhow I counted 25 people in my line, some left saying they wouldn't be back, what a way to run a business. Well Corp. this is why some of your stores are going down hill. I know your to busy to listen like always.
Jan 31, 2014 3:44PM
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nope, economy is doing just fine.  nothing to wory about.

 

348,000 jobless claims and sub 2% gdp growth in 2013.

 

thats a hearty recovery!.  thanks biden for doing a good job as jobs czar

Jan 31, 2014 5:41PM
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Really am sick of hearing how great the economy is from so called 'EXPERTS' and those sitting in Washington.  They say the unemployment rate is down.  Hell, these people LOST THEIR BENEFITS! You only collect for a certain period of time, and then you are done. So the unemployment rate numbers are BOGUS! People have signed up left and right for food stamps, so saying the economy is good isn't taking into consideration the amount of food stamps being pumped into it.  They claim there are jobs opening everywhere, yet we main street people aren't able to locate them.  Because Wal-Mart says they didn't make enough money the past year- - that suddenly opens eyes to the economy not being so good?  I'm still waiting on that 'TRICKLE DOWN CRAP' to get to me....I've lost my unemployment benefits and live on welfare.  Thanks so much to all the Corporations out there trickling down the money!  And, in case anyone out there decides to make up crap on my behalf....I am a college grad, lost all my savings, 401k, job and benefits.  I am working part time for minimum wage and collecting welfare, food stamps and medical through the State. I paid into it all these years, I'll now use it.  Barely making it. I would have been doing better had I still been able to collect unemployment, as it was more than welfare pays!
Jan 31, 2014 4:05PM
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Groceries are MUCH cheaper at my local Kroger store (Gerbes). Don't see any reason to frequent WM any longer....
Jan 31, 2014 4:01PM
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I haven't spent a dime in a Wal  Mart store for almost six years now.  I will never spend any money with them again. 

 

The article talks about Home Depot being a store for contractors.  I'm a contractor, and I know a lot of contractors in this area and we don't buy all that much from them  I spend probably around 5% of my total materisals expenditures with them last year.  Everyone is so convinced these big box stores are cheaper to buy at but over all they are not.  The don't a discount to the contractor but sell to the contractor at the same price as everyone else.  My local lumber/hardware dealer gives me a dicount and delivers to me at no additional cost .  Try getting that from Home Depot or Lowes and I won't even begin to talk about I think of Menard's.

 

I am one of those who buys a lot of stuff online.  We just don't have in our area the avaiablity of a lot of those stores to shop at in person.  I can see them being gone after a time.  Just look at the empty stores on the main streets of small town America.  The really sad part is with these closings jobs that won't be replaced, and likely more things coming from overseas.  What does that really do for our economy.  Jobless rates are down, from what they were  some businesses have brought jobs back from China but too many still do business over there. 

 

We all need to start worrying now about what it's going to do to us overall to have these businesses gone.

Jan 31, 2014 4:48PM
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I wish we as a nation had the answers of why people shop at the Chinese Warehouse (Wal Mart) you only have to look at our so called government (Free Trade?) Killed the made in USA production livelihood for many. Outsourced the jobs, killed the small businesses that keep USA made products away and let the Chinese copy 80% or more of these goods? Then buy them back to sell at socalled low prices? Now if you didn't know some aircraft parts for general aviation aircraft are being made in Mexico and someaircraft being produced there scares the heck out of me. That does not put faith of their aircraft in some pilots...That area of the Made in USA is dying everyday..
Jan 31, 2014 4:53PM
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This should be the best evidence that American capitalism is failing. For the system to work, there must be CIRCULATION of wealth. That circulation creates demand, which creates growth. With ever less disposable income, demand is declining relative to the size of the population.
It was never a question of whether the "rich" would get richer - they will. The question is "how fast?"
95% of economic gains of the last decade went to the top 1%. The remaining 5% of gains is nowhere near enough to support growth in demand, which is necessary for the system to remain healthy.
If e-commerce is growing, while brick and mortar is falling, there is the problem of jobs evaporating, which further depresses demand. The cycle becomes clear. E-commerce (such as with Amazon) is the least labor-intensive form of retail, since it is extremely automated. That is why this is bad news. While we know that retail is not a high paying field for the vast majority who work in that sector, fewer and fewer jobs is still a big negative.
Worst of all is the fact that there is absolutely no policy initiative from either left or right that offers to change the situation. In fact, the TPP will likely be adopted, which will be yet another big blow against ordinary Americans.
Meanwhile, we are fed fairy tale numbers and fantasy outlooks by the government and media, while the cold, hard truth continues to get worse.

Jan 31, 2014 4:33PM
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It's no doubt that Walmart sales are sliding! Their shelves are bare, The produce is getting very old and starting to rot, along with the meat. No help when trying to find a product, and long lines at the registers. I used to enjoy shopping there. I'm going to King Soopers now.
Jan 31, 2014 5:19PM
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Not that I think Biden and Obama are doing that great they don't share all the blame.  It wasn't many elections back the the Republican Job Creators were everywhere running for office.  I always found it funny with all these job creators where were the jobs.  We need to understand you can't grow an economy on cheap wages while everything from utilities, rent, food and gas prices continue to rise.
Jan 31, 2014 5:41PM
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When you ship are jobs to China, India, Mexico (NAFTA) what do you expect. It is coming back and biting WALMART in the -ss.  We don't have money to spend. More proof trickle down economics don't work. This is why TPP (trade agreement) must be scrapped. How about Fair Trade instead of free trade, which only benefits the corporations.
Jan 31, 2014 5:47PM
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Walmart needs to die like Montgomery Wards. Didn't take them long to go from selling "only made in America" to made in China. Partner with Communist China and screw the American people and small towns. Quit Shopping There People your cutting your own throats.
Jan 31, 2014 4:56PM
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Any one try Aldi's for groceries?  Best food prices.  Great business model.
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One of the problems with Walmart in my town, is their terribly rude indifferent attitude ... No eye contact with the customer and no attempts to be helpful, in any way.  Need help?  You are on your own.  Screw them ... I'll go elsewhere.


Jan 31, 2014 4:57PM
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Wal-Mart is NOT the "deal" they started out to be!  Prices are much cheaper & american in other "box stores" like "Shoppers" Giant, Shop Rite, and so on! Wal-Mart is higher anymore I have shopped elsewhere and saved receipts from Wal-Mart item for item ! And its filthy , and half of the items don't even show the correct price , its sad.
Jan 31, 2014 4:33PM
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Not a wal mart shopper at all. Don't buy anything there and haven't since they were created. They are too full of chinese c*r*a*p that isn't even close to practical or durable. Hope to dance on their grave before they dance on mine.  
Jan 31, 2014 4:46PM
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You wanna know why sales are down everywhere?  Here is a good example:  Out of the $8500 of federal taxes taken out of my pay from last year, I'm only getting $3000 total back in a refund.  The federal gubmint can go f- themselves.
Jan 31, 2014 4:38PM
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Most of the named Big Box stores are hurting because they have made serious cuts to customer service. Try and find a sales clerk who knows enough to answer a question. I would rather buy from a brick and mortar store because I can get the product the same day and don't have to wait to have it delivered. But I can get more information from online resources, so I buy from them.  
Jan 31, 2014 3:49PM
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I hope Wal-mart take a betting,keep it up don't shop there.They are the worst,lets try to put them under.Good Day 
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