Warren Buffett has lightened the load with respect to his holdings in Walmart (WMT) , per disclosures this week.
And so has the market more broadly. Shares of the world's largest retailer, which reports earnings on Thursday morning, have lost about 2.5% over the past three months, after enjoying a relatively unabated path higher for most of the year.
The selloff has come despite evidence of a continued improvement in the U.S. labor market, favorable retail sales trends and early payoffs by Walmart to regain its leadership standing in retail. If Amazon AMZN didn't fear Walmart coming into 2016, it should as we near the conclusion of the year.
So what may have the market mildly concerned?
The wage dynamic is changing. The clear upward trajectory of minimum wages across the country is a long-term headwind -- that much became evident on Election Day. Although Walmart did good to raise its wages this year for store employees, the reality is that the wage dynamic will be more of a headwind for retailers over the next five years than in the past five years. Walmart's very business model is predicated on keeping wages under some degree of control. Now that degree of control is slowly eroding.
Holiday season price war? There could be concern on how aggressive Walmart plans to get with its price investments this holiday season. From talking with Walmart execs recently, I don't think this coming holiday season will have the retailer giving products away for losses in every single department. In other words, the holiday season is always competitive and this one will be no different. Expect Walmart to do what it does -- drive down prices to drive up sales -- which may turn out well in the end should consumers step up post presidential election.
What's up for next year? Believe it or not, some on Wall Street may already be looking beyond the holiday season and zeroing on Walmart's earnings guidance for 2017. There could be several headwinds, ranging from the aforementioned minimum wage hikes to investments in integrating Jet.com to broader investments in digital. It's also unclear to what extent Walmart embeds caution into its outlook with respect to overseas operations, especially China in light of President-elect Trump's rhetoric on the country during his campaign.
But the naysayers on Walmart, which apparently may include Buffett given his Walmart stock sales, may have forgotten a couple of positive things.
First, Walmart has shown this year that while it's doling out higher wages, those higher wages are actually filtering into more spending in its stores by employees. So, the impact of rising wages may not be as severe as Wall Street expects right now.
Second, Walmart could very well win the holiday season. From what I can tell, the company's plans from are impressive in terms of price investments and merchandise assortment. Dollar stores such as Dollar General (DG) and Dollar Tree (DLTR) , will be hard pressed to have a successful holiday season in light of Walmart's efforts. Meanwhile, many discounters, such as Target (TGT) , may be forced to react to Walmart's actions, which obviously puts Walmart in a solid position financially.
And finally, CEO Doug McMillon and his team have done a good job articulating the costs that will likely be required to beef up digital and integrate Jet.com.
In other words, the market may not be too surprised by what Walmart has to say on the earnings guidance front when it reports in mid-February next year.
Walmart will likely deliver a solid set of numbers on Thursday morning, too. That should also go a long way in fueling a debate on whether the stock has sold off for no fundamental reason.