The Daily Dose: Wal-Mart's Choice

 | Jul 25, 2014 | 8:30 AM EDT
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The move to replace Bill Simon as Wal-Mart (WMT) U.S. President & CEO, announced yesterday, comes at a very, very peculiar time. For those good at solving puzzles, however, the reasons why the change is happening two weeks before earnings are obvious.

Simon publicly disclosed what amounted to an earnings warning on July 9 in a Reuters interview. That is a no-no -- perhaps a final straw in light of poor management of the business during his tenure. At Wal-Mart, you are usually only allowed to talk in public settings on the four pre-recorded earnings calls and at the fun-filled annual event in Bentonville, Arkansas. 

Besides that verbal gaffe, which likely came out of anger upon learning he was going to be asked to step aside, same-store sales have fallen for five straight quarters for Wal-Mart U.S.  Inventories are building. Aisles are now jam-packed with merchandise, in the hopes of enticing a mom on a budget, to no avail. I believe Wal-Mart must announce a major restructuring of its U.S. business. This would mean taking a charge to earnings. The business has grown too big to manage -- and that should freak out all of the widows and orphans holding this dead money stock because it pays a dividend.

Bottom line: a decision to replace a high-ranking leader of a major retailer before back-to-school and before holidays is no laughing matter, and speaks volumes about the current trends in the U.S. business. At least Wal-Mart will be able to blame Simon for its financial challenges for the remainder of 2014, with Foran looking to pitch a better story to investors in 2015 and at the hoopla-filled annual meeting.

Starbucks Is Still One to Hold

I am off to my brother's wedding today, so time is limited. On Twitter, I noted that Starbucks (SBUX) would have to beat by $0.02 to keep the bulls intrigued. The beat was only a penny.  However, upon reflecting on the quarter last night, I think Starbucks is one to hold in front of a major dividend increase. The U.S. comp increase of 7% was impressive, looked great compared to all competitors, not to name Chipotle (CMG). The margin expansion was solid, and Howard Schultz sounded a bit more positive than he did a couple months ago, when he warned about changes in demand from more mobile consumption.

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