Wal-Mart CEO Has Great Timing

 | Feb 21, 2014 | 10:30 AM EST
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Doug McMillon took the helm of Wal-Mart (WMT) just three weeks ago and inherited the company's recent history of overly-optimistic guidance. He also inherited easy comparisons of four quarters of negative same-store sales growth. So we shouldn't really be surprised that he took the opportunity to slash guidance as compared with the Street to the tune of 5%. This year, Wal-Mart is looking for the low end of the 3-5% sales growth range and no longer expects operating income at or greater than the sales rate.

Let's run through the unpleasant, but largely expected highlights of the quarter.

Comps down 0.40%, which was no surprise after a preannouncement and frankly it could have been worse (thanks Target (TGT) security breach?).  Traffic was down as expected, but decelerated to -170 bps as compared with 40-50 bps for the past two quarters. Average ticket saved the day at +130 bps, but don't expect that to last, as last year's food inflation may be out of gas for now. The list of pressures included the usual suspects including weather and the reduction in food stamp benefits, which hurt the overall comp by 40 bps.

While the company listed pressures for this year that were largely expected, there was a change in tune from the top. Rather than focusing on the productivity loop (plowing cost savings back into price) we heard the phrases "customer service" and "merchandising innovation." While prices rule, it is refreshing to hear WMT thinking more about the customer experience. Also a new development, we were encouraged to hear e-commerce transparency will be a new focus.

While this ship that represents $0.08 of every dollar spent in the U.S. won't be easy to turn, this is a move in the right direction.

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