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
864Comments
Nov 15, 2012 4:45PM
avatar
Their sales people are rude and stupid - I'll never go back !
Nov 15, 2012 4:45PM
avatar
 Um, is there even a PeopleOfWalmart type of website page for Target? I'm all for supporting American stores but geez, spruce up the place a little and treat your employees a little better. I can't hardly stand Wal Mart anymore and prefer to shop at Target. At least I don't feel like a second class citizen.. Nothing but trash at Wal Mart. The shoppers and Chinese products both...
Nov 15, 2012 4:44PM
avatar
 I HATE WALMART.  I HOPE THEY LOSE TONS AND TONS OF MONEY!!! This is great news for people who hate Wal Mart!!!!  
Nov 15, 2012 4:43PM
avatar
The problem is how big is too big. They can buy there way out of every lawsuit and cheat their employees every chance they get. The bottom line is their only care.
Nov 15, 2012 4:43PM
avatar
I'll tell you what is wrong with Walmart. Selling crappy Chinese made products for too high a price. You are lucky to get any kind of help and the one where I live is always low on grocery goods. And you can't get a job there if you freaking beg for it.
Nov 15, 2012 4:42PM
avatar
I love Wal-Mart.  Where else can you go get everything you need in one stop, and cheap too?  Don't care about atmosphere or who they employ.  If it is true they don't treat their employees right, that's definitively a negative, but does not keep me from shopping there.  If your employer doesn't treat you right, get another job.
Nov 15, 2012 4:41PM
avatar

holy crapoli!

 

do you think Americans are finally realizing the you get low quality along with that low price????

 

 

 

 

 

 

nah....

Nov 15, 2012 4:41PM
avatar
UNIONIZE ALL WALMARTS ACROSS THE USA WE HAVE THE RIGHT WITHOUT BEING FIRED . THIS IS NOT CHINA.
Nov 15, 2012 4:29PM
avatar
When asking "what's wrong with Wal-Mart" you don't know where to start. How about the fact that they treat their help like crap. How about that half the time their stores are poorly stocked. How about the sloppy junky appearance of their stores. How about the cheap low quality Chinese junk they sell. How about bad or no customer service. How about their attitude in rural areas, take it or leave it we are now the only game in town. I could go on and on but W/M shoppers already know what's wrong, and W/M doesn't care.
Nov 15, 2012 4:22PM
avatar
it is such a depressing place to shop - who would want to - they treat their employees terribly - and the atmosphere in the store is dull
Nov 15, 2012 2:59PM
avatar
i know what is wrong with Wal-mart . They can pay 99 million dollars defending bribery charges . If you work for Wal-mart and are injured on the job Wal-mart will deny 65-94 % of their workers comp claims so they can put more money in the pockets of upper management . they are self-insured and process there own claims. It is like putting the fox in charge of the chicken house. I had to pay $2100.00 for heat exhaustion at a non air conditioned facility. They know a lawyer won't take a case for $500.00 fee is all they can charge for that small of a hospital bill. google Wal-Mart workers comp claims and you will see what is wrong with Wal-Mart. They do not care about any associate. They also delayed me going to the hospital for over 25-30 min. tried to get me to go home and drink water. when I needed immediate medical care.
avatar
same old diatribe, pick on the 800# gorilla.  if most of the players in this country had  the walmart numbers of the last 20-30 years our country would be basking in diamonds!   bitch bitch bitch..the golden greek
Nov 15, 2012 2:11PM
avatar
Mmmmmh.... what could _possibly_ be wrong with Wal-Mart? I don't know. Something tells me the person who wrote this article has never actually been to Wal-Mart. I have and had I been in charge of writing this column I would have title it "Is there anything right with Wal-Mart?".
Nov 15, 2012 1:38PM
avatar
I like Wal-Mart. I have never been in a Target store.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
266
266 rated 2
485
485 rated 3
660
660 rated 4
586
586 rated 5
652
652 rated 6
640
640 rated 7
504
504 rated 8
289
289 rated 9
159
159 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.