Wal-Mart Not Immune to Slumping Sales

Largest US retailer may signal economy’s continued weakness
By Heide B. Malhotra, Epoch Times
May 28, 2013 Updated: May 28, 2013    

Wal-Mart Stores Inc. has been ranked No. 1 on the list of the 250 largest global retailers of fiscal 2011 in the Global Powers of Retailing January 2013 report, published by Deloitte LLP, a member of Deloitte Touche Tohmatsu Ltd. 

CNNMoney also ranked Wal-Mart No. 1 on its 2013 Fortune 500 list, based on the revenues of America’s 500 largest firms. 

The difference between the two lists is that CNN only ranks U.S.-based publicly traded retail companies, while the Deloitte list includes publicly traded and privately held companies worldwide. Furthermore, the Deloitte ranking is based on 2011 financial information, while the Fortune 500 ranking is based on 2012 financial information. 

Wal-Mart ranks second on the Top 20 Retail list, with Amazon.com in the top position, in the Top 100 Most Valuable Global Brands 2013 report, published on the WPP website, a global marketing communications group. 

Wal-Mart grew 5 percent in brand value in 2012 to $36.2 billion, behind its competitor Amazon.com, which grew by 34 percent to a brand value of $46 billion. 

In the case of Walmart retail stores, its brand value is considered to be the firm’s lower prices when compared with its competitors—a reason why customers are willing to shop at Walmart.

Dropping Sales
In its first quarter 2013 earnings release published on May 16, Wal-Mart Stores states, “Walmart U.S. comp sales declined 1.4 percent in the 13-week period from Jan. 26 to Apr. 26, 2013.” 

According to the earnings release, sales increased by 1 percent compared to the same time period in 2012, from $112 billion to $113 billion, which is disappointing sales growth according to corporate analysts. 

Wal-Mart management’s rationale for the decrease in sales volume includes the postponement of consumer income tax refund checks, climatic changes, and higher payroll taxes.

According to media reports, the weather excuse is a difficult one to swallow because weather conditions across the United States were better in 2013 than during the same period in 2012.

A May 20 article on the Profit Confidential website points to a decrease in consumers’ disposable income, which affects sales at Walmart stores. 

“What Wal-Mart’s contracting same-store sales and slowing consumer expenditure rates show is that consumer spending in the U.S. is not growing. From the statistics, we can see the average American consumer is suffering,” the Profit Confidential article suggests. 

A May 17 article on the Gains, Pains & Capital website, which has articles aimed at educating investors, suggests that one should pay no heed to government statistics, but look closely at corporate revenues because “you cannot fake actual money coming in the door.” 

Gains, Pains & Capital states that not just Wal-Mart’s sales revenues, but also revenues at Procter & Gamble Co., Starbucks Corp., AT&T Inc., Safeway Inc., American Express Co., and International Business Machines Corp. (IBM) have declined. 

Since Wal-Mart is a firm that has topped the list of retailers for years, with rising sales for the past six quarters, the article concludes that if retail sales at Wal-Mart are falling, then the U.S. economy must be in trouble, despite the numbers publicized by the U.S. federal government. 

Analyzing Wal-Mart’s Value
Moody’s Investors Service’s long-term rating for Wal-Mart is Aa2; it is not on watch and its outlook is stable. Affirming its rating, Moody’s states that Wal-Mart’s retail store pricing strategy is beneficial during these troubled economic times; however, the challenge is to retain its customers when finances improve. 

Standard & Poor’s Rating Service’s (S&P) foreign long-term rating for Wal-Mart is AA, and its outlook is stable. This rating hasn’t changed since 1999, with S&P affirming it on May 13. 

A discussion on the InvestorGuide.com website suggests that Wal-Mart is a moderate buy. The average analyst recommendation is a numerical value of 1.95, where 1 is a strong buy and 5 a strong sell recommendation. 

Zacks, an independent research firm, is neutral concerning Wal-Mart’s stock, which could imply that investors should consider selling the stock. 

The Stock Consultant website stated in its overall summary about Wal-Mart on May 24 that it is 70 percent market bullish and 30 percent market bearish concerning the firm’s stock. 

Meanwhile, an article on the Investor Place website suggests, “If WMT [Wal-Mart] sustains a dip in buying pressure after this earnings announcement, it could very well send this stock down into hold territory. So I consider WMT shares a cautious B-ranked buy.” 

Well-Known Investors Holding Wal-Mart Shares
George Soros, chairman of the Soros Fund Management LLC, a Hungarian-American business tycoon, holds 820,000 Wal-Mart shares in his portfolio, with a market value of $61 million on March 31. Soros held 1.25 million shares of Wal-Mart on Dec. 31, 2012, and therefore shrank his holdings by 430,000 shares, according to Securities and Exchange Commission Form 13F filings. 

Warren Buffett, chairman and CEO of Berkshire Hathaway, holds 49,247,235 shares of Wal-Mart, which he recently increased by 3.68 percent, according to a March 31 Dataroma list of Berkshire’s portfolio. 

The top 10 institutional holders of Wal-Mart stock include The Vanguard Group Inc. with 89,771,128 shares, followed by State Street Corp., and Berkshire Hathaway Inc., according to a list on the Yahoo Finance website. 

Wal-Mart, the largest U.S. retailer, is experiencing a downturn in sales, which is attributed to different factors by Wal-Mart management and stock analysts. Suggestions are that Wal-Mart, given the high U.S. unemployment rate, may continue to experience sluggish sales.