The largest retailer, the biggest private employer, and the third-largest public corporation in the world — Wal-Mart Stores, Inc. (NYSE:WMT) — recently declared its first quarter results for fiscal 2014; which were indeed – lackluster!
The global retailing Goliath reported its earnings on May 16. The company, operating in 15 countries under 55 different names, is counted among the most valuable companies in the world. But, its recent numbers have a different story to tell.
What the reports have to say?
Total sales were $113.4 billion, which was an increase of just 1% over last year. According to the company, fluctuations in currency exchange rates have had a negative impact on net sales of $1 billion, and thus, revenue was below consensus estimates.
U.S. comp sales dipped 1.4 % because of a 1.8% decline in store traffic. Owing to the year-end complications related to the fiscal cliff, tax refunds were delayed this year. The IRS delayed the filing process by 15 days, resulting in refund checks coming later than usual. IRS reported that U.S. consumers received about $9 billion less in tax refunds this year.
Earlier this year, the payroll tax increase has particularly impacted Wal-Mart Stores, Inc. (NYSE:WMT)’s low income segment customers. Poor sales of warm-weather related items such as outdoor furniture, sporting goods, and spring clothing also played their part in bringing down comparable store sales. Moreover, Wal-Mart Stores, Inc. (NYSE:WMT)’s management stated that the price inflation of grocery items (which contributes more than 50% to the retailer’s revenue) was lower than expected. All the factors are likely valid for a company as broad and encompassing as Wal-Mart Stores, Inc. (NYSE:WMT).
Membership and other income increased 1.6% versus last year, due primarily to an increase in membership income. The diluted earnings per share were $1.14, a 4.6% increase compared to $1.09 last year. This was a penny below consensus estimates. Free cash flow for the quarter totaled $1.9 billion, lower than that of the prior-year period. It benefited from a substantial amount of accrued income taxes. Even e-commerce sales grew more than 30% compared to last year’s first quarter.
Although the numbers were below expectations, the future still looks bright as we’ll see below.
In the news!
“Our mobile strategy is as simple as it is audacious. We want to make mobile tools that become indispensable for our customers while shopping in our stores and online,” said Gibu Thomas, global head of Wal-Mart Stores, Inc. (NYSE:WMT)’s mobile division, on May 16, 2013, at the CTIA Wireless conference in Las Vegas.
Wal-Mart has come up with a brilliant idea to tell you what to buy using your mobile device! It’s using its massive data collection in association with big data to make it a reality.
By leveraging big data, it is developing predictive capabilities to automatically generate a shopping list for customers, based on what they purchase each week. Also, with its already present Geo-fencing feature, the app senses when the user is in a Wal-Mart store in the U.S. It then prompts the user to switch to “Store Mode” which allows them to scan QR codes for prices and discounts.
Also, the user can voice command the app to search for a particular item within a specific budget. The app subsequently generates a list of best selling items of that type in the requested budget requirements, available in the store.
With mobile-influenced offline sales expected to reach $700 billion by 2016 (according to Deloitte) it’s not astonishing that Wal-Mart is doing everything it can to get its mobile strategy in order, including harnessing the power of big data to drive tools and services.
Results?
“Compared to non-app users, customers with a Wal-Mart app make two more shopping trips a month to our stores and spend nearly 40 percent more each month,” said Thomas.
Moreover, with more than 50% of Wal-Mart’s customer base equipped with smartphones, it has already seen significant growth in the number of people using the app on their devices while shopping in the store.
The company has made calculated moves to ensure that its customer base with smartphone access expands, thereby enhancing sales. This is good news not just for the company, but also for investors. Sales are already improving, showing a positive sign of growth. Moreover, the company has plans to open 27 new stores in the remainder of the financial year, including Builders Warehouse stores in Botswana and Mozambique.
A look at its peers
Best Buy Co., Inc. (NYSE:BBY), one of the major competitors of Wal-Mart, recently reported average first-quarter results. Although reported net income was 58% lower compared to the same period last year, it did report $0.32 a share better than the estimates of $0.25 a share. Like Wal-Mart, Best Buy’s same-store sales in the U.S. dropped 1.1%, simply because the company failed to attract customers.
The company has cut down its expenses by $175 million since March of this year. Although Best Buy Co., Inc. (NYSE:BBY) seems underrated compared to Wal-Mart, its stock price has more than doubled in the last 15 months. Undoubtedly, it has returned more than 50% in the last one year, but it won’t be a wise decision if you still believe to hold on to the stock expecting future gains.
Wal-Mart still has a lot to learn from veteran online shopping company Amazon.com, Inc. (NASDAQ:AMZN). As per Amazon.com, Inc. (NASDAQ:AMZN)’s latest financial results, growth slowed from last year although revenue rose 22% to $16 billion. The main reason being the company’s heavy investment in cloud computing technologies to create newer avenues of growth. The company’s recent acquisition of Goodreads (a social network for books) will definitely provide a social angle to Amazon’s website, thereby bringing in additional customers and readers.
It has a huge cash pile of $7.9 billion, allowing it to make such acquisitions and investments as and when required. It also has a very high P/S ratio of 1.92 compared to its peers. Nevertheless, owing to Amazon’s extremely strong fundamentals and efficient management, investors are willing to wait for profits while the company invests in growth. This makes me believe that the stock is overpriced and definitely not trading cheap at the moment, but looks sustainable in the long run.
Foolish takeaway
Wal-Mart did produce a lackluster quarter, but for a company so huge, well established, and ever so growing, a bad quarter doesn’t make much of a difference. When you look at the bigger picture, the company still has a lot to offer.
“Wal-Mart’s mission is simple and focused — to help people save money so they can live better. I’m confident about our long-term strategy and the direction Wal-Mart is headed. Our balance sheet is strong, and we continue to grow.” said Mike Duke, Wal-Mart Stores President and Chief Executive Officer.
The company’s plans also sound quite promising. It has recently received confirmation from the Indian government to enter the country’s multi-brand retail. The company expects to deliver EPS for Q2 between $1.22 and $1.27, compared to $1.18 last year. It has deployed cash to grow their business and return value to shareholders. During the first quarter, Wal-Mart repurchased approximately 30 million shares for $2.2 billion. In addition, the company paid $1.6 billion in dividends.
Presently, the company is fairly priced at its current valuation of 15.5 times. But I won’t suggest investing in it at the moment as the stock is currently trading at record highs. But, if you literally want to ‘Save money and Live Better’ as the company’s tag-line goes, then holding your current investments will be the right choice for you.
Rishabh Jain has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
The article Is This a Dull Start to a Bright Future for This Company? originally appeared on Fool.com and is written by Rishabh Jain.
Rishabh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
