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Wal-Mart: Is the Street Confused or Simply Unimpressed?


"Yup, the stock has been range-bound for years... they should be happy about it!"


Wal-Mart (WMT) is surly and they want everyone to know it.

They are incredulous that they have to fight planning boards whenever they want to enter one of the few markets Wal-Mart hasn't already tapped (see below).

They feel victimized by opportunistic employees/ union groups regarding their employment practices. They are plain-spoken in their stance and beliefs: "Let the market speak. Don't take jobs that aren't competitive. Don't shop in our stores if you don't like us."

Wal-Mart is ticked off, playing angry and rather uncharacteristically doing some "Woofing" about it through the channels of the world's number one retailer disdained during the giddy high-multiple years. (Sam Walton was great for a "we're growing with America!" soundbite; much less chatty about operational details.)

Now they want to talk the nitty gritty. Miss sales for November? Take down the margins for all of retail and do it on live TV. Unhappy with the stock? Say so loudly and often.

"We haven't done a good job telling the whole story," Wal-Mart (WMT) Chief Financial Officer Tom Schoewe says today in a Wall Street Journal "Heard on the Street", repeating an argument he previously made while hosting on CNBC.

Mr. Schoewe calls cannibalization a good thing, because it contributes to incremental sales. "What would you rather have -- two $100 million stores or three $80 million stores?"

"What we have here is a failure to commun'cate":

Generally speaking, I think the market gets it just fine (and really hates being told otherwise). What analysts and the stock chart (below) are all but screaming, and what Mr. Schoewe is working against, is the fact that the market doesn't think WMT's growth prospects, looking out 10-years, are as good as they were 10,15 or 20 years ago. The company can argue as they want but they've run out of easy, high-margin growth opportunities.

In effect Boo, speaking for the bears is saying "We get it, Mr. Schoewe. Two smaller stores... bigger pile of money than one big one. And grocery. Wal-Mart's operating margin is 4.9% and the stock trades at 23x earnings. Target ((TGT)... getting hit today on an analyst concerned that TGT misses the Q and/ or guides lower) trades at 22x with an operating margin of 7.3%.

"Then again, Safeway (SWY) a big grocer union problems, trades at 10x with an operating margin of 3.7%. Albertsons (ABS) trades at 15x trailing with a 3.7% op margin" Boo concludes respectfully, "We agree that you can be the best grocer in the world... that's why you trade at a... *cough*... premium."

As a seven year chart of Wal-Mart's stock shows, slowing growth eventually translates into "multiple compression" for even the best companies. It's not a good or bad thing, Mr. Schoewe. It just "is".

Positions in SWY,

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