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
What's wrong with Walmart is that they know people will still shop there no matter how bad the stores are because people in this economy can't afford anything else.
They slash employee hours every schedule until there is hardly anyone left to help customers, clean and organize merchandise, stock shelves, and keep inventory ordered. If you wonder why the place is a dump, things are constantly out of stock, and no one's around to help, it's because Walmart knows they can cut payroll and still get people to shop there. It's this idea that the customer's backs are against the wall so they don't need to work for their patronage anymore. And you know what- they will continue to do it until people can once again afford to shop at Walmart's better-run competitors. So be sure to thank Walmart for treating you like crap by shopping somewhere else once you're able to.
I think a greeter at the fron of the store who knows the location of everything in the store would be a big access to any new customer or one who wants to drop in make a purchase and get out in less time.
The votes have been counted and Wal Mart truly sucks and everyone hates the way they do business; well at least 50% of Americans; mostly the poor Americans and the workers at Wal Mart; that must be why they are still doing relatively well.
I do not like to see this type of news about ANY company. I completely understand the comments and complaints about Wal-Mart stores and I agree with these folks. I see it in the stores around where I live.
I am the Training Coordinator in our local Wal-Mart store. I work very hard to influence upon our current and new associates that customer service is our #1 priority. I stress that it is crucial to keep our store clean, well stocked, organized, and friendly. We want our customers' shopping experience to be Fast, Friendly, and Clean. I'm proud of our store. I enjoy walking through the doors each day and viewing a store that looks like it takes it's business seriously. Our hard work is paying off. We have regular customers who drive past 2 or 3 Wal-Marts so they can shop in our store. We take that as a great compliment and it makes us proud.
I encounter a lot of negativity about Wal-Mart on a daily basis. I would be remiss if I failed to tell you that our company has been good to me. Wal-Mart is the largest private retailer in the world. It should go without saying that, as such, we are constantly working with trial and error. Our company is not perfect. Changes are being made slowly, but surely. Do not give up on us. We are not ready to throw in the towel yet.
Wal-Mart Supercenter # 406
Maybe Wal-Mart will learn from this. I recently went to a Wal-Mart strore in Yelm, Washington order a birthday cake for my daughter, it was around 7:30 PM. They told me I could not order a cake because the baker has gone for the night, and come back tomorrow. I was shocked that the nation's #1 retailer could not take my order for a birthday cake at 7:30 PM. I just drove down the street to Safeway to where I was immediatly taken care of. Also always long lines at the checks outs at this particular store with only three cash registers open out of about 40 registers.
people are finally getting wise to the racist hiring policies and practices at Walmart, and the low quality items that are over priced, and then marked down, as if the customers do not know any different. I would rather go the dollar store where you can get the same merchandise!. I have had nothingbut bad luck with most of my electronic purchases at Walmart
This is the nascent future of American blue-collar retailing--an abomination of cheap merchandise, poor service, uninspired employees, large turnover, and dingy atmosphere. Like I imagine the Soviet Union would be, had it survived.
Will Wal-Mart? No, they'll keep on bribing, gouging, using and discarding, 'til Target beats them handily several quarters in a row. Then they'll have a big hoopla reorganization and rebranding--like KMart. THEN they'll die, if we're lucky.
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