What's causing Wal-Mart's woes
While more focused and higher-end rivals posted positive earnings surprises, Wal-Mart fell short of expectations.
Wal-Mart (WMT) may promise "Low Prices. Every Day. On Everything," but it was particularly aggressive about offering discounts at holiday time -- and now it's paying the price.
While more focused and higher-end rivals like Macy's (M), Saks (SKS) and Home Depot (HD) posted upside earnings surprises and were rewarded by investors, Wal-Mart fell short of expectations, reporting net income for the fourth quarter of $1.50 a share, down from $1.70 in the year-earlier period, and sales that also disappointed retailing analysts.
After reporting those numbers Tuesday, Wal-Mart stock retreated 2.45% on Wednesday, bringing its loss this week to 6.2%.
It's not all bad news in Bentonville, Ark., though: Wal-Mart's sales, while disappointing to Wall Street, are still higher than they were last year. It remains a huge global player and its international operations are doing well. But it's being squeezed by other retailers, from direct rivals like Costco (COST) and Target (TGT) to Dollar Tree (DLTR) and other discounters. Nor can it innovate its way out of trouble. It had tried to improve performance by de-cluttering stores and trimming the number of products it sold but was forced to reverse those decisions last year after the changes hurt sales. So while the company may be in better shape now, it is still working on fixing up its stores and implementing its revised strategy – and its results will continue to reflect that. "There is no doubt that we are reducing expenses and investing in lower prices for Wal-Mart customers. You can expect margins to decline as we put these initiatives into place," CFO Charles Holley told analysts on the earnings call this week.
In the era of the Internet and tools that allow customers to check out your prices and compare them to those of your rivals before ever setting foot in a store, there's not much a budget retailer can do beyond slash prices to the bone, like Wal-Mart did. But these days, its customers – those same hurting lower middle-class consumers whose votes politicians are appealing for – aren't feeling affluent enough to indulge in the kind of sudden splurges or impulse buys that might add up to big gains for Wal-Mart.
Analysts have jumped on the earnings announcement as a reason to cut their ratings on the stock, and that's probably the right thing to do. The retail industry overall is still trying to recover, and it isn't the Wal-Marts of the world that seem to possess the secret of thriving in the 21st century.
Most investors would be better off finding a way to build a retail portfolio that includes some niche bricks and mortar retailers (like Home Depot, whose earnings soared 32%) or those that have combined a strong online presence with some other edge, such as being able to appeal to more affluent consumers. Adding a Saks stock to a share of Dollar Tree might get you a similar demographic exposure (at least conceptually!) as well as stronger financial results. Throw in some online retailers -- a bit of Amazon.com (AMZN), perhaps – and the result likely will continue to do better than a behemoth like Wal-Mart in the current market environment.
The one advantage Wal-Mart can provide is a healthy yield, one that the recent slump in the company's share price has made still more alluring. But a 2.5% annual dividend isn't likely to compensate for earnings growth and a higher stock price, except in the eyes of the most fearful and risk-averse consumer, especially if stock prices continue to march generally higher. Wal-Mart's earnings release has offered investors shopping for stocks a new kind of consumer warning: "Buy at your own risk."
5 Marketing Myths About Women Debunked
Amazon Kindles Investor Outrage
7 Grocery Store Items Americans are Blowing Money On
Walmart's problems are caused by greed. They treat employees as if they were slaves and import their goods from China, where children are forced to work in inhumane conditions. Even bargain hunters won't buy from Walmart because of their corporate philosophy. I'd rather pay double for a similar item at another store than to give Walmart a dime. I actually drive 30 miles to go to a Target store instead of shopping at the Walmart that is 10 minutes away...
If they want my American-made money, they need to sell American-made items and pay their workers a decent wage. They also need to quit enslaving poor Americans with their "quick free credit" cards, where they charge the poor 30% interest to buy their inferior goods. Shame on Walmart. Sam is rolling over in his grave.
Part of Wal-Mart's strategy is to pay wages that place its employees below the poverty line required to receive public assistance. In CA a few years back, WM employees used an estimated 40% more in publicly funded health care than the average employee at other large retailers. And their families utilized an additional $54 million in non-health related federal assistance, including food stamps, the Earned Income Tax Credit, subsidized school lunches, and subsidized housing. WM's personnel depts help employees apply for and access public assistance programs. On top of that, they negotiate hard bargains with cities for infrastructure and sales tax credits.
So Wal-Mart's 'competitive' pricing structure is achieved in part on the backs of the American taxpayer. If you added what taxpayers chip in to shore up the sub-par wage and benefit structures to get the "true" cost of an item at WM, maybe it isn't such a huge bargain after all.
The problem with Walmart is that it has outgrown itself. The central message and core values are weak and unclear. Everyone who is an managerial position is only out for personal gains and what the can get out of the company. Meanwhile the company is falling by the wayside because no one is looking out for it.
Plain and simple nothing else matters if the values and beliefs I mentioned above dont change.
love to debate it...but the problem goes back to the basics
oh and yeah I actually was just a manager at walmart and quit because of what I witnessed above
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.
The apparel chain takes a hard hit after blaming the weather for its quarterly sales decline. But cold temperatures don't explain the drop in full-year sales as well.
VIDEO ON MSN MONEY
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.