What's the matter with Wal-Mart?
Bribery investigations and lackluster sales dog the world's largest retailer.
Shares of Wal-Mart (WMT) tumbled in early trading after the world's largest retailer reported lackluster sales, disclosed that investigations into alleged bribery overseas have expanded and gave uninspiring guidance. To add insult to injury, rival Target (TGT) reported better-than-expected earnings.
Net income at the Bentonville, Ark. company rose 8.7% to $3.64 billion, or $1.08 per share, versus $3.34 billion, or 97 cents per share, a year earlier. Revenue rose 3.4% to $113.9 billion. Same-store sales, a key retail metric measuring activity at stores opened at least a year, rose 1.5%. Wall Street expected Wal-Mart to earn $1.07 per share on revenue of $114.95 billion. Analysts also expected Wal-Mart to post same-store sales growth of 2%, according to Bloomberg.
Wal-Mart came under fire earlier this year after the New York Times reported that the company ignored evidence of widespread bribery at its operations in Mexico. The U.S. Department of Justice and the Securities and Exchange Commission are investigating whether Wal-Mart's actions in Mexico violated the Foreign Corrupt Practice Act (FCPA). Wal-Mart has spent $99 million on its response to the allegations and defending itself against related lawsuits.
The company also disclosed Thursday that it had launched internal probes into possible FCPA violations in China, Brazil and India. Companies do these sorts of internal probes because the federal government might go easier on them in future legal proceedings if they find evidence of wrongdoing themselves.
Looking ahead, Wal-Mart said it expects fourth quarter earnings to be between $1.53 a share and $1.58 a share, a penny lower than Wall Street expectations. The company expects full-year results in the range of $4.88 per share to $4.93 per share, versus earlier forecasts of $4.83 per share to $4.93 per share. Wall Street expectations were for profit of $4.94 per share.
Wal-Mart's argument that its earnings performance is reflective of the overall economy doesn't hold water given how well Target is doing. The smaller rival handily beat Wall Street's expectations, Reuters reported, and is probably expanding its market share ahead of the important holiday season.
One reason why Target is succeeding and Wal-Mart is floundering has to be store design. Shopping at Target is a pleasant experience because its stores are well-lit with merchandise that is easy to find. Wal-Mart stores, at least the ones I have seen, tend to be dingy and the layouts tend to be confusing. My family and I have been loyal Target shoppers for years, and we rarely venture into Wal-Mart, even though there is a location that isn't far from us.
Though Wal-Mart's prices are undoubtedly low, that strategy has its limits. People who shop solely based on costs are probably the least loyal consumers around. If Wal-Mart ever hopes to emerge from its slump, it will need to offer consumers something more. Exactly what that may be is tough to say.
Investors should stay clear of Wal-Mart stock for the time being. Besides, Target is a much better value. The Minnesota company currently trades at a price-to-earnings ratio of 14.05, well under its five-year high of 17.04, according to Reuters. The average 52-week price target on Target is $70, more than 13% above where it currently trades.
Jonathan Berr is long Target. Follow him on Twitter@jdberr
4 out of the 9 richest Americans.. are Waltons..
do you think Americans are finally realizing the you get low quality along with that low price????
Target's stores are cleaner,have better lighting,prices are very competitive with Walmart
Walmart here is often out of items and stays out sometimes for weeks at a time
the employees here seem to absolutely hate their jobs,its pretty obvious
They have the poorest customer service in the retail industry. They will not respond to complaints at the corporate or store level. When you contact corporate about a problem, all they do is send it back to the store and say you will be contacted by store management. That has never taken place as far as I'm concerned.
When you contact store management directly they do nothing because they know if you complain to corporate, it will come back to them and then they can ignore it.
I have not shopped there for 2 years and will not shop there again because they failed to respond to my complaints. I will pay more at another store, rather than shop there.
I hate Wal-mart. But, I shop there all the time. I can get everything I need in one stop and their prices beat everyone else around. Why would I go to my local Fareway store in Iowa when I can go to Wal-Mart and pay anywhere from 10 - 20 percent less for everything on my list? When other stores start matching their prices I'll be happy to shop with them.
And as far as all their stuff coming from China, walk into almost any store in the U S and try to find something that doesn't. The problem isn't Wal-Mart, the problem is all those American companies that crapped on their American employees and moved overseas to up the money in their CEO's pockets.
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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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