What's the matter with Wal-Mart?

Bribery investigations and lackluster sales dog the world's largest retailer.

By Jonathan Berr Nov 15, 2012 12:09PM

Jin Lee Bloomberg via Getty ImagesShares 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

Tags: TGTWMT
865Comments
Nov 15, 2012 4:56PM
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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.

Nov 15, 2012 4:56PM
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One thing wrong with Wal-Mart is lack of customer service.  We recently purchased a DVD and had to wait 20 minutes to get the plastic jacket removed.  The poor cashier kept calling for a manager and no one responded -- she tried twice to locate one between trying to ring up customers.  She finally had to chase a manager down at the back of the store!!!  I understand the unfortunate need for security devices, but the cashiers should have access to something to speed the process.  I avoid Wal-Mart at all costs!!!
Nov 15, 2012 4:55PM
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4 out of the 9 richest Americans.. are Waltons..

 AND that Wal-Mart refuses to offer health care benefits to it's part-time employees..which is likely about 80% of it's workforce. AND that Wal-Mart is the #1 private employer in the USA --by nearly 4x that of the #2 American employer. 80% of Wal-Mart employees recieve food stamps. Employees rely on $2.66 billion in government assistance each years.  Approximately $420,000 per store.
 
In short, everything that is wrong with America can be summed up by Wal-Mart.
Nov 15, 2012 4:55PM
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I'd start with out-of-stocks, and mis-priced merchandise.  For those of you who dislike them, just

don't shop there then, it's your right!  Of course most of you would rather sit at your computer, or your laptop, or phone, or IPad and Bitch, Bitch, Bitch!  Happy Day!

Nov 15, 2012 4:55PM
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I agree, the atmosphere, the sad old folks in blue shirts pushing boxes and stocking shelves, the creepy customers, the time I wanted to put the cheese that was in my cart back in the dairy case and the checker promptly put in the trash saying they don't restock food, or the time an employee told me I was being watched "at all times"  Just creepy. 
Nov 15, 2012 4:55PM
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What's wrong with wal-mart is that Sam Walton died.  When he was running the company they had high standards, treated their employees great, sold American made products, and gave people value for their money.  During a recent trip to wal-mart, I had to wait about 15 to 20 minutes in the check out line before it was even my turn to check out.  When Sam Walton was running the company I remember cashiers having to wait for customers to check out.  Maybe one could see this as a metaphor on our country as a whole, but I just know that Sam Walton was able to create a large company and become very successful without letting greed corrupt that success and without having to treat his employees and costumers like dirt.
Nov 15, 2012 4:55PM
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JAY Z WAS BLOWIN OBAMA LAST NIGHT IN HIS LIMO
Nov 15, 2012 4:55PM
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Yay...  Another Walmart hater.  Shopping at Target is as unpleasant as shopping at Walmart.  The Targets in our area are not "well-lit" with merchandise (empty shelves and little to choose from) and the layout makes absolutely no sense at all.  Check out the parking lots at both - two to three times the number of cars in a Walmart parking lot vs. the few in the Target lot.  Please, keep shopping at your Target.  I'm going to Wamart to buy the same TV for $200 vs the $250 you will pay at Target. 

Nov 15, 2012 4:54PM
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UNIONS ARE WHATS WRONG WITH AMERICA THEY PAY THIER FAT CAT CEO MORE THAN WALMART
Nov 15, 2012 4:54PM
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I don't know what's going on at WalMart but lately i might as well shop at a regular store. It seems to me that the prices are just about the same.
Nov 15, 2012 4:53PM
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My wifes a cashier at a WalMart and you are right they don't treat the help very well, nor pay them a wothwhile wage for what they do,.  AS with all large Companies the bottom line is money and the more the better, GREED.
Nov 15, 2012 4:53PM
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one word for whats wrong with wal-mart and this country basically.....GREED!


Nov 15, 2012 4:52PM
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I personally refuse to shop at Wal-Mart for any reason.....The atmosphere there is one of unhappiness and customer care is at a definate low... I will give my hard earned dollars to K-mart, Target or any other big box store... I know that I will be taken care of there....
Nov 15, 2012 4:52PM
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"".....Sam Walton's greedy little kids !
Nov 15, 2012 4:51PM
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I abhor WalMart. Dislike them with a passion. Buy there PJ's, wear them, wash them and then get rid of them because they fell apart in the washer. NO customer service, stand in lines forever to spend my money, smell bad, can't find anything and most of what they sell is dollar store junk from China. I do love Target, clean, friendly and the merchandise is better quality. WalMart's lower price motto, just makes me think "you get what you pay for."
Nov 15, 2012 4:50PM
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I HEARD THAT THE CEO AND JOE BIDEN WERE SEEN RIDIN AROUND WITH A BUNCH OF MIDGET QUEERS GETIN HIGH TALKIN ABOUT GETIN MARRIED   HE  HEE
Nov 15, 2012 4:49PM
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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. 

Nov 15, 2012 4:47PM
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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

Nov 15, 2012 4:47PM
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union all walmarts across the usa . start the movement walmart employees this is not CHINA

 

Nov 15, 2012 4:46PM
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WALMART WILL CLOSE A BUNCH OF STORES SOON ,BECAUSE OF OBAMAS HEALTH CARE BILL ITS COMIN!!!!
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