Telling someone to pay attention to Wal-Mart Stores Inc.’s earnings is a bit like commanding them to pore over a longitudinal study of drying paint. And that is quite a big change.
After all, who would have thought that Wal-Mart
WMT,
would turn from the fortune and glory of one of the greatest retail stories ever told to a total cellar mouse?
There is a reason, though — in fact, several of them — to lean in close and listen when Wal-Mart reports its first-quarter earnings before the stock market opens Thursday.
For one, Wal-Mart might be moving off its long down slope. Moreover, with all its segments and initiatives, Wal-Mart, looked at piecemeal, says a lot about a heap of other companies.
Here’s the baseline: Wal-Mart has punched out a bunch of lame quarters, blaming everything from weather to food stamps, with its stock falling into still waters. In February, in fact, Wal-Mart marked its fourth quarter of sequential declines in U.S. sales. For that, the company can thank everyone from Amazon
AMZN,
to Dollar General
DG,
to Target
TGT,
to Kohl’s
KSS,
and on and on.
Meanwhile, back in the court of public opinion, the company suffers a cottage industry of haters, from liberal college students, who abhor its labor practices, to arch-conservatives, kicking Wal-Mart in the corporate shins for its reliance on overseas sourcing. President Obama recently gave a speech at a northern California Wal-Mart and was roundly mocked, as journalists have taken sharp issue with the high pay of Wal-Mart insiders.
What’s not to hate?
Wall Street expects the Arkansas-based retailer, which qualifies as both the world’s largest and most reviled, to report earnings of $1.15 a share, a rise of 1% from last year’s first quarter, but up from the fourth quarter’s earnings decline of 4%. Revenue is due to hit just over $116 billion, a 2% bump.
Online retailing has chipped away at Wal-Mart’s primacy, but the brick-and-mortar warhorse is fighting back. Though coming off of a comparatively lower base, Wal-Mart’s online sales volume grew at a faster rate than that of Amazon — 30% versus 20%. Amazon has nearly $70 billion in sales, so Wal-Mart, at $10 billion, has room to grow, to put it mildly. Better yet, as the storyline shifts from Wal-Mart getting hurt by Amazon to putting a hurt on Amazon, the stock’s valuation should increase.
Wal-Mart has an initiative to bite back at a number of the small-store formats that have hurt its business, with offerings in more manageable and urban environments. Wal-Mart initiatives are often suspect, more bluster than believable. But Wal-Mart has gone a goodly length toward adding a sense of legitimacy to its small-store push, announcing plans in February to add 270 to 300 small stores this fiscal year.
Wal-Mart’s expansion into the money-transfer business, a $900 billion industry, holds distant appeal — but also serves as a metaphor. The Bentonville, Arkansas outfit has officially been roused from its slumber. Recognizing its own irrelevancy after years of passivity, Wal-Mart is actively searching out new avenues. The company’s era of immovability might be over, and any sign of life is preferable to those feet of clay.
Outside of Wal-Mart’s own fortunes, a trader can see in its myriad of operations the fortunes of others. In the most basic sense, Macy’s
M,
J.C. Penney
US:JCP,
Nordstrom
JWN,
and Kohl’s report this week, but without issues of systemic failure or a weighting to a particular region of the world, Wal-Mart offers the chance for the best bead on the retail world. This is always important, but especially at this juncture. The abnormally cold winter hurt American retail, but a spring thaw has apparently been in the works since February. A decent performance by Wal-Mart would provide fitting — read: final — confirmation.
Wal-Mart’s promise to produce more goods in the U.S. appears, unlike its small-store plans, to be more of a pose, a playact to court public approval. But if the company appears to be moving into overdrive on this initiative too, there will be implications for all the nation’s retailers.
From electronics to home goods to — now — organic food, Wal-Mart holds the potential for perspective for nearly anyone who peddles anything. Whether your stock is Whole Foods
US:WFM,
Home Depot
HD,
or Best Buy
BBY,
bend your ear toward the sound of Wal-Mart’s performance.
Wal-Mart induces narcolepsy in traders and rage in members of the general public. But take note: Wal-Mart may be deviating from its recently grim history and, at any rate, a trader can, if nothing else, glean a lot of meaning from Wal-Mart’s earnings.
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