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 16, 2012 11:06AM
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I shop at Wal-Mart almost daily, and have no complaints.  I will continue to shop there, regardless of whether or not Jonathan Berr (or any other journalist) writes a negative article about the company.
Nov 16, 2012 11:05AM
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What's wrong with Wal-Mart?? Nothing - what's wrong with you? People inherently hate success. Wal-Mart executed a strategic business plan to bring low cost groceries to consumers - that's what the people demanded. Anyone who has ever taken a business class knows that quality and prices are directly related. Yeah it's sad Wal-Mart has driven out small business in many rural areas of the country, but unfortunately our country calls that "progress".  Things will never be "the way they were back when". So get over it. Wal-Mart has been the dominate market-share holder for years now because of their ability to keep costs low and they've done it better than anyone else in the game. The tides look to be turning - that's good for Target. But when will we as consumers start to demand more from them as well? One thing is for sure - Americans will never be satisfied.

Nov 16, 2012 11:04AM
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Walmart could go along way if they would simply put the customer first. I am convinced that a requirement to work at Walmart is to never smile, be ready block the isles while discussing with their friends about what they will be doing the next weekend so other shoppers can't move down the row, respond to questions in a grumpy manner, and when stocking shelves you must never move out of the customer's way so the customer can get to the products being stocked ... When I get good service I like to let management know but at Walmart I'm afraid to praise an employee to their manager because they seem to disappear from the store within a few weeks of my praising them to management. 

 

It would help if they would show the same pricing throughout the store for the same item. Once they had Cokes with three different prices and when asking the staff which was the correct price the answers received varied from: "Whatever the highest price is" to "Whatever the register reads at checkout"; to "We can sell you the Cokes at the lowest pricing but you can only purchase 2 at that price, the rest will be at the higher price" to "We don't control the pricing of Cokes so it's not our problem" to "Jane Doe's responsible for taking down the old pricing and she hasn't made it to all of the displays"; to "Naturally we have to sell them at the lowest pricing we have marked".  Often the pricing above the shelf will reflect one price while the sticker on the shelf reflects a different pricing.

 

It would be nice if Walmart would spend at least half as much time keeping the store shelves stocked as they do moving merchandise to other locations around the store or if they would stock related items in the same area (to have coffee on one side of the store and filters on the other doesn't make good customer oriented sense).  Once you get used to buying a specific item, Walmart will stop carrying it. Quite often, I have to go to another store after shopping at Walmart to get all the items I need.

Nov 16, 2012 11:00AM
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The real tragedy is that corporations are set up to cheat people of health care by limiting their hours to under 40 hours, or full time.  With that in place, the corporation does not have to pay for health care or any other benefits'.  Greed has become a plague in the world and the Wal Mart family has fallen into this abyss.  It is true that their products are garbage from other countries, are over priced, the service is non-existent, and people of low income are blind to these things because they cannot afford to shop elsewhere.  Me, I grow most of my food, buy clothing at Kmart once a year, and do my best to tolerate the country falling into such sad affairs.  I am a senior citizen on limited income under $700 per month.  I live in the country and it is a 60 mile round trip to get supplies and I learn to get by.  I am just another victim of corporate valdalism with no recourse but to make my own clothes when I can afford the overpriced, crappy, material from Indonesia, and once a year buy a needed piece of garment from Kmart.  I refuse to buy clothing from Walmart.  It is much worse than Kmart.
Nov 16, 2012 10:56AM
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I WILL HAVE TO AGREE WITH THE AUTHOR ON THIS ONE!!! LOL FOR THE MOST PART (TARGET: BRIGHT REFRESHING SPACIOUS ORGANIZED APPEARING CLEAN GREAT FLOOR PLANS) (WALMART: GREAT PRICES HOWEVER/ DINGY FEELING UNDER-LIT POOR LAYOUT A LITTLE MORE CRAMMED) I NEVER WORKED FOR EITHER, WHERE I LIVE THEY ARE SIDE BY SIDE ROUGHLY EST 200FT-300FT APART AND AS A MAN I WOULD RATHER "BE" IN TARGET --- EVEN IF I'M NOT THE ONE DOING THE SHOPPING.

Nov 16, 2012 10:55AM
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WalMart's Greed and buy it from overseas for cheaper and then stick it to the consumer mentality has finally caught up to it.

 

And I say "YAY YAY YAY, WOO HOO, WOO HOO"

 

The big stores will make great roller rinks when they are gone!!!

Nov 16, 2012 10:52AM
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I'll bet Wally Mart employees have to shop at Dollar Tree and you know they use Medicaid for health insurance and Republicans want more of this type of establishments.  Private enterprise starving the USA employees, while the Waltons live on an island and bank in the Caymans.
Nov 16, 2012 10:51AM
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People are getting tired of the way they are treated by the Walmart employees.
Nov 16, 2012 10:51AM
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I don't mind shopping at the one in my area, but I damn sure wouldn't want to be an employee.
Nov 16, 2012 10:49AM
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Wal-Mart has let growth get beyond their ability to manage it. "Damn the torpedoes, full speed ahead".

Their attempts to completely manage the system by computer is being thwarted by individual store personnel who have learned to "cook the books" for their own aggrandizement. A computer is only as good as it's programmer, and one must wonder how much retail experience some of these people have.

 

Nov 16, 2012 10:47AM
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The problem I see most about Wal-mart is they sell 90% of goods made in China.......If the owners cared about enployment in this country, they would at least sell 50% Chinese goods and 50% Made in America..............By the way, I have a list of things and receipts to prove it, fifteen items I bought made in China that broke or fell apart...these items are shoes, sheets, two bluetooth devices, one boombox stereo. Now I discover even Japan is having Toshiba laptops made in China.....Japan makes quality goods such as camera's and cars because a friend owns a Toyota that has 140K miles on it, with only minor repair issues.....The Toyota was assembled in Tennessee, so they at least care about the status of America... China may at sometime make quality goods, but it seems most of the items purchased by me failed.....As Americans, we should try to support America this Christmas. Why not give gifts made in America or better still a service provided in America such as a massage, hair styling etc etc....
Nov 16, 2012 10:45AM
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Hey fill up a buggy with frozen foods and stand in line and just leave the buggy.  It will stay there as the food defrosts.....later they put it back.

 

Stand in line and see frozen crabcakes someone has placed on the checkout areas where they sell last second gum, batteries, etc.  It will stay there until it thaws.  Later somone will send it back and someone will  buy it.  you.

Nov 16, 2012 10:42AM
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My wife calls it "Hellmart"

 

We also call Tacco Bell "Tacco Hell"  one drive through, lines, sow as a glacier.

Nov 16, 2012 10:34AM
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The answer is simple. Communist Chinese made junk. Shop at Walmart and help support Communism.
Nov 16, 2012 10:32AM
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Michael Jackson wrote a song once "man in the mirror". He was asking us to change our ways.

 

That's what Americans REALLY need to do. We hate the wealthy, even though their the only ones hiring. We hate big corporate America, but we sure want one on their job openings. We want unions, high wages, primo health care, all the things that run a company in the ground. Then we whine like a bunch of crying liberals when our companies are forced to manufacture over seas or fold.

 

I hate to say it ...Americans have become a bunch of whining, crying, pampered little babies....It's all about ME....not WE.

And we wonder why the world hate's us.

Nov 16, 2012 10:30AM
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Good news is if they do go out of business all the employees there are qualified to work for the TSA.  Same attitudes and abilities. 
Nov 16, 2012 10:30AM
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Customer Service is where Wal-Mart sucks.  When you have two check-out lines open and ten to twenty people in each line waiting to check out it becomes aggrevating and discouraging to shop there.  Every Wal-Mart in the Memphis, TN, and surrounding areas that I've visited seems to consist of long waiting lines and lack of certain goods being available (not on shelves).  The managers are normally walking around and they never have enough cashiers on duty to assist customers.  I've seen many people put their items back and walk out of the store in disgust (if this is a word).  Its not like that at Target.  I've never had to stand in line for longer than two or three minutes without a manager coming over to open a new line or start checking out people themselves.  Appeal is everything to the human eye, and if there is no appeal, then you're probably not going to attract many people.  I have several ideas that can combat these shopping woes.  :-).

Nov 16, 2012 10:23AM
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Walmart is what it is, a cheap place, top to bottom. If you want lad-de-dah service go to Bloomingdales or Tiffany. Walmart is self-service not customer service, they are not one-in-the-same and don't go together. Yes, I work retail (not Walmart) holidays nights weekends, ain't fun, cudos to those who do it and accept low wage as opposed to no wage. Most big retail has too many chiefs and no Indians. For me, if my employer is open holidays etc I will work, I need the money, if others oppose it fine, just shop when you think it is appropriate, don't try to take away extra $$ that I could earn with extra hours available to me over the holidays as I know my hours get cut in January. Not sure where they get the comments about Target being better, last three times I went there with a list of 10+ things I needed, I came out with zero of them available so I don't bother any more, at least Walmart had half of them so I try to stretch my dollars where I can. The golden rule: he who has the gold makes the rules...
Nov 16, 2012 10:22AM
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So heres the deal Folks...... If you dont like Wal-Mart....... DONT SHOP THERE!!!!! Quit crying and whining about it. If you think they are that bad, dont shop there and tell all of your friends to stop shopping there. It is not going to do any good because the fact is that a LOT of shoppers shop at Wal-Mart at least once a week. The fact that they do not provide their part time workers with insurance is just the norm, NO ONE PROVIDES PART TIME WORKERS BENEFITS! As far as their merchandise being made in China... EVERYTHING WE BUY IS MADE IN CINA OR SOMEWHERE ELSE. AMERICA MANUFUCTURES NEXT TO NOTHING!!!
Nov 16, 2012 10:19AM
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The home of the 9.00 an hour employee has problems? There is not enough space to type in the issues of the mega junk store. They can't go out of business soon enough to suit me. Folks need to make a living and have benefits. But as long a sheeple will buy their foreign made crap, they'll stay in business.
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