The Daily Dose: Wal-Mart Confidential

 | May 16, 2014 | 10:30 AM EDT
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Wal-Mart (WMT) just had to disrupt all the positions taken in the market by those greedy pigs. Here is what we could glean from an economic standpoint from the company's latest quarter:

  1. Job growth acceleration is misleading.
  2. Wages need to grow if lower-income consumers are to spend.
  3. What types of jobs are being created on the low end?
  4. Employers continue to have massive sway over employees in this "strong economy."
  5. No reason to shop/people won't shop. Retailers will have to plan inventory better.
  6. Even lower prices for wants and needs are required to complete a transaction.

As for what we learned specifically:

The company continues to massively underperform for investors who are increasingly not expecting much. The shares gained nicely in the lead-up to the first-quarter release, benefiting from the broader market's rotation into large-caps. Not only does that buying interest in Wal-Mart shares look foolish in light of the first-quarter figures, but also it stands to be completely reversed in coming months based on the numerous fundamental disappointments in the quarter from a company that has grown too big to manage properly.

I believe what amounted to Wal-Mart's fifth consecutive earnings warning will finally lead to greater scrutiny by the investment community on the clear, deep issues plaguing the world's largest retailer. And I believe this to be true: While inclement weather was an unfortunate factor in the first quarter of 2014 (the term "severe weather" was mentioned four times in the earnings release), the underlying business is not as "solid" as likely outgoing U.S. unit President Bill Simon would suggest (going on two years of underperformance under Simon's leadership).

So tell your friend's this weekend that Wal-Mart had a bad quarter. When doing so, use these facts:

  • Both Wal-Mart U.S. and Sam's Club missed their "easy" comparable guidance offered three months earlier.
  • Store comps at both divisions were worse excluding online sales.
  • At the low-end, Wal-Mart's second-quarter earnings-per-share guidance was $0.13 below consensus, $0.03 at the high end. That range expresses little confidence in the "positive" start to 2Q14 being anything more than an Easter-related shopping anomaly (makes you wonder what transpired for the rest of April and now into May). Memo: Wal-Mart's outlooks are falling shy of lowered Street estimates -- a red flag.
  • Second-quarter comparative guidance for Wal-Mart U.S. being flat represented another quarter in which Wal-Mart was unable to positively compare on a negative year-ago comp. No good -- that is Retail Stock Analysis 101.
  • The Wal-Mart U.S. and Sam's Club businesses are not finding ways to leverage expenses on the sluggish embedded comp trend. Macy's (M) grew its operating margin in the first quarter despite negative sales. Where is Wal-Mart's expensive savings magic?
  • Traffic continues to be negative, despite investments in price, TV marketing and social marketing (check out Wal-Mart Instagram). Traffic troubles are partly related to weather in 1Q14, but also very reflective of how people are now shopping and the company not being able to full play in that trend.
  • Right into the weak 1Q14 earnings and 2Q14 guidance letdown (and continued pressure on return on investment -- are those tech investments online paying off?) this management team is full bore on repurchasing stock. Another red flag.

Here is a chart to share:

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