I normally wouldn't devote an entire column to a single company. Then again, Wal-Mart (WMT) is not a typical company by any stretch of the imagination. Wal-Mart touches our lives in visible and in less than visible manners.
If Wal-Mart drops the price on Campbell's Soup, chances are Target (TGT) and Kroger (KR) will follow suit almost immediately. Suddenly, a U.S. family could stock their shelves more cheaply, freeing up funds to be spent elsewhere. The reach of Wal-Mart into our lives is why you should have a basic understanding of the ins and outs of the company other than the obvious buzzy headline stuff. Here are a few considerations.
The Fact the Announcement Arrived Pre-Black Friday
Timing was on the shocking side (Mike Duke won't even be allowed to deliver the holiday quarter earnings report, sort of a slap to the face), but the decision was not. Mike Duke has been a lame duck CEO for the better part of a year. There was no chance Wal-Mart's board of directors would vote in U.S. leader Bill Simon. He has delivered three quarters of negative same-store sales growth and bears the majority of blame for a mid-year earnings warning. In the end, Wal-Mart opted to send a statement pre-holiday that Doug McMillon was their long-term guy. It was a signal that they wanted his friendlier persona (he rose through the ranks at Wal-Mart) as the new face as the company deals with a firestorm of public negativity on the brand once again.
Fast Fact: Wal-Mart FY13 earnings guidance entering the year: $5.20-$5.4
Wal-Mart FY13 earnings guidance currently: $5.10-$5.11
What Now for the Holidays?
Expect an even more aggressive Wal-Mart on price since the inventory in the stores and marketing that surrounds it are owned by Mike Duke and his team. Wal-Mart will leave it all on the field to not start a McMillon CEO reign on a super sour note. This is obviously unfortunate for Target, Costco (CSCO, Sears (SHLD), Kmart, and Best Buy (BBY). It could be a positive development for a HanesBrands (HBI), who may benefit from stronger order activity in 2014 as basics are moved aggressively during the holidays.
Around the Horn
Much remains up in the air on how a Wal-Mart led by McMillon will take shape. Below are a range of thoughts that may or may not impact the performance of the companies you own in the portfolio.
- I expect international store growth to be significantly more measured. There will be fewer construction materials used. Sorry, Stanley Black & Decker (SWK).
- There are 300 or so Wal-Mart U.S. stores producing negative same-store sales growth, I anticipate closures that could benefit traditional grocers and dollar stores.
- This perception that a Doug McMillon who basically has spent his adult life at Wal-Mat will rally the store troops is a bit overdone. I say get real: money talks, baby. Expect more self-checkout system installations and a continued focus on the Wal-Mart way of doing business.
- It's good that Wal-Mart's new CEO with the same haircut as the outgoing fella has a better understanding of the importance of technology in the stores. Expect Wal-Mart to continue to invest in its Silicon Valley tech lab and eventually, have Google shops alongside Apple shops inside of its stores.
Grading Mike Duke
Here is what Mike Duke brought to Wal-Mart shareholders since he took the helm in February 2009: an underperforming stock price.