Walmart (WMT) stock slid on Thursday despite releasing a strong earnings report and guidance.
Shares of the Bentonville, Arkansas-based retail giant slid 2% in the day's trading to below the century mark, closing at $99.54.
The slide came despite an earnings report that charted $1.08 in earnings per share cruised past analyst estimates of $1.01, and revenue that beat estimates after accounting for foreign-currency headwind that held up revenue results on their face.
Run Up Against the Market
Part of the problem is that Walmart has been running out of step with the market amid its October corrections.
While the S&P lost double digits, Walmart was running up by nearly the same margin.
Jeff Marks, senior portfolio analyst for Jim Cramer's Action Alerts Plus Charitable Trust, explained that the retail sector had become overbought due to the seemingly "safe trade" in retail, which was backed up by the strong U.S. consumer.
Marks noted that this observation helped his team exit their position on Nordstrom (JWN) two weeks before its earnings. Nordstrom has since plummeted from its late October highs around $67 per share to just $54 per share post-market on Thursday.
Cramer, the portfolio manager for the trust, highlighted that the earnings numbers for companies like Walmart were not bad, but rather they were caught up in the current cyclical anxiety.
"I heard instantly not that anything was wrong with Walmart. Just the opposite, everything was good, so good, that it can't ever be better because we are at the end of the cycle," Cramer wrote in his column Thursday. "It becomes almost circular reasoning. The stock can't go higher because it is the end of the cycle and it's the end of the cycle because the stock's down. That's exactly what happened."
Bernie and Buffett
Adding to the anxiety for those fearing an encroaching bear market was the exit of Warren Buffett, who had been a long-term holder of the retail standby.
According to a recent 13-F filing, Berkshire Hathaway (BRK.A) (BRK.B) offloaded 1.4 million shares of Walmart stock, cutting the long-standing relationship.
The news of the cut coincides with negative attention from Bernie Sanders.
The U.S. Senator from Vermont and former Democratic Party presidential contender proposed the "Stop Walmart Act" on Thursday aimed at forcing higher wages out of the company amidst its already compressing margins.
The act would prevent the company from buying back its own stock unless it provides $15 per hour wages to its employees. Though aimed both by its name and some vitriolic statements from Sanders' Twitter account, the proposed bill would apply to any company with over 500 employees.
While Walmart claims it cannot afford to pay its workers $15 an hour, it was able to find enough money to pay its CEO more than $22 million last year.
Tomorrow @RepRoKhanna and I will be introducing The Stop WALMART Act to put an end to their outrageous greed.
— Bernie Sanders (@SenSanders) November 14, 2018
Sanders famously called on Amazon (AMZN) CEO Jeff Bezos to raise his own minimum wage in September through his "Stop Bad Employers by Zeroing Out Subsidies" Act, also known as the "Stop Bezos Act" due to use of clever acronyms.
Bezos did in fact capitulate to the pressure after a short period of time, which has come under scrutiny for its true motives, one of which could be to force costs up for chief competitors while he automates his workforce.
It will remain to be seen whether or not Walmart executives react similarly to Amazon's.
Margins and Macro Pressure
Also a problem for the company related to Amazon is a likely price battle for holiday shoppers with the serial retail disruptor.
"The pressure today seems to be people worrying about margin compression that could result from heavy discounting into the holiday season," Action Alerts Plus analyst Zev Fima told Real Money. "Amazon's Black Friday deals kick off on November 16, and you know every other retailer is going to have to get creative to compete and, in this case, creative means discounts."
Of course, any discussion of margins would be incomplete without the two T's of margin pressure: Transportation and tariffs.
"Tariffs are not positive for the economy," Walmart CFO Brett Biggs told the media on a conference call Thursday morning. "Prices will go up."
This seems to be self-evident, but the pressure will be especially tough on Walmart amid a likely price battle given the company sources a good deal of its goods, up to 70% in fact, from China.
"Adding to price pressure is the uncertainty around China, where Walmart gets a lot of its goods," Fima told Real Money, noting that these factors can help weigh on shares especially after the retailer emerged as a rare winner in the October correction.
Bullishness Remains
Still, the slide amidst the market and margin pressures isn't turning off analysts looking ahead to Black Friday and beyond.
"WMT's comps outperform as impressive customer traffic continues across stores and digital," Cowen analyst Oliver Chen wrote in a note. "The retailer has done a good job leveraging in-store costs on strong comps. We would be buyers on potential weakness given 1.6% EPS raise."
He explained that strong results in the third quarter bode very well moving into the company's strongest season as well, especially as the retail space becomes less crowded.
"Lots of stockings will be stuffed with WMT goods," Chen declared.
Much of the stocking will be done digitally as well, judging by the strength of the company's e-commerce segment.
Walmart CEO Doug McMillon announced his expectation of even further domestic digital growth after posting 43% growth in the quarter.
The company's e-commerce push in the U.S. is helping bring it into competition with eBay (EBAY) and toward Amazon's eCommerce crown, according to recent numbers form eMarketer.
The opportunity for growth of the already hulking Walmart is reinforced by a strong retail backdrop overall.
The U.S. Commerce Department reported Thursday that retail and food-services sales rose 0.8% in October to $511.5 billion, exceeding expectations of a 0.5% monthly advance.
That suggests that even while many speculators fear a bull market, the U.S. consumer is still out and spending in force.
These metrics are bolstered by the jobs and wage numbers released earlier this month which reflect a larger base of employed consumers with more spending power.
The results from Walmart suggest that a great degree of this spending power is heading to some of the big-box leaders as well.
"Recent results from Walmart and Costco (COST) , as well as likely Target (TGT) when they report next week show that scale retailers investing in multichannel are taking share amidst a favorable U.S. retail backdrop," MoffettNathanson analyst Greg Melich wrote in a note on Thursday. "A recent moderation in growth at Amazon, as well as competitor closures aren't hurting either, with Toys R Us, Sears (SHLD) , Fred's (FRED) , and even Family Dollar named share donors."
That donation of share could be helped along further as JCPenney (JCP) encounters its own trouble and may donate some share of gift sales into Christmas.
Amid the tailwinds available, analyst consensus remains a "Buy" for Walmart, per FactSet data with a price target of about $105 per share.
For investors bullish on the retail space, Thursday's bearish slide could provide a solid buying opportunity. Much of Wall Street certainly thinks so even if the market doesn't yet.
