Ahead of the Tape: A Big Box of Trouble for Wal-Mart -- WSJ
February 21 2017 - 3:03AM
Dow Jones News
By Steven Russolillo
Warren Buffett nearly bailing out of Wal-Mart Stores Inc. only
adds to the big-box chain's list of concerns.
Mr. Buffett's Berkshire Hathaway dumped $900 million worth of
Wal-Mart stock at the end of 2016, the fourth consecutive quarter
it has pared its position, according to federal filings. The move
supports the concerns Mr. Buffett and others have voiced about the
world's largest retailer and its uphill battle against online
behemoth Amazon.com Inc.
Amazon "is a big, big force and it has already disrupted plenty
of people and it will disrupt more," Mr. Buffett said last year at
Berkshire's annual shareholders meeting. And while Wal-Mart has
taken substantial steps to improve its e-commerce operations,
Tuesday's earnings report for the key holiday season will likely
show just how much further it still has to go.
Analysts polled by FactSet estimate fiscal fourth-quarter
earnings of $1.29 a share, down from $1.49 a year earlier. Revenue
for the period ending in January is expected to have risen 1% to
$131.1 billion.
The good news is that Wal-Mart finally is refining its approach
to the Amazon threat. Last month it wisely dropped a program that
offered customers free two-day shipping for a $49 annual membership
free, electing instead to offer free shipping on more items.
Such a decision, which isn't cheap, comes after Wal-Mart bought
Jet.com last year for $3.3 billion, the largest purchase ever of an
e-commerce startup. Jet.com helped boost Wal-Mart's e-commerce
sales by 21% in the third quarter. And just last week, Wal-Mart
bought outdoor internet retailer Moosejaw for $51 million, its
second small-scale e-commerce purchase of 2017.
But Wal-Mart has a long road ahead. The company generated $3.6
billion in e-commerce sales in the third quarter, only 3% of its
total revenue. By comparison, Amazon logged $43.7 billion in its
most recent reported quarterly revenue.
And political turbulence, which already has taken a toll on
Wal-Mart's shares, threatens to make business conditions more
difficult. The strong dollar has hurt Wal-Mart internationally
since it gets roughly one-quarter of its total revenue from
overseas, with Mexico being a key contributor. Wal-Mart has 2,373
stores in Mexico, roughly 20% of its locations.
Retailers including Wal-Mart have plenty to lose if President
Donald Trump imposes new tariffs on trade or a border-adjusted tax.
That is because many of them rely heavily on overseas factories for
the goods they sell.
That helps explain why Wal-Mart shares are essentially unchanged
since the presidential election even as the market has raced
higher. Wal-Mart has underperformed Amazon by 8 percentage points
and the Dow Jones Industrial Average by 13 percentage points since
Nov. 8.
Bargain hunters won't find much of a deal here, either. Fetching
16 times projected earnings over the next 12 months, Wal-Mart's
multiple remains above its five-year average.
It is little wonder Mr. Buffett isn't waiting for a price
rollback on this one.
(END) Dow Jones Newswires
February 21, 2017 02:48 ET (07:48 GMT)
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