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Wal-Mart's Inventory Scare Sinks Dow

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

New home sales rose 14.6% from a month ago to an annualized rate of 421,000, according to the U.S. Census Bureau. Further, the Mortgage Bankers Association said mortgage applications rose 5.5% last week as interest rates dropped. But solid housing data did little to buoy markets today, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is off 0.37% late in trading, while the more diverse S&P 500 (SNPINDEX: ^GSPC  ) has fallen 0.2%. Keep in mind that housing data can be volatile month to month, especially with interest rates bouncing around as they have since May.

What may have had an even bigger effect on the markets today was a report by Bloomberg that Wal-Mart (NYSE: WMT  ) is cutting back orders for the third and fourth quarters in an effort to reduce inventory. The report suggests that rising inventories in the third quarter led the company to cancel or adjust orders with suppliers as far as two quarters out. 

Wal-Mart quickly responded on CNBC, with spokesman David Tovar saying that the reports were "misleading" and that inventory is constantly changing.  

Shares have pulled back 1.6% as I'm writing, weighing on the Dow. If you're a shareholder, I don't think this is a reason to panic today, simply because this is part of business. One part of Wal-Mart may be reducing inventory while another is growing, and with inventory up faster than sales last year, it's easy to see why some inventory cutbacks are taking place.

The bigger concern investors should be looking is Wal-Mart's long-term sales trajectory. Same-store sales were down 0.3% last quarter, potentially a sign that customers are looking elsewhere for their goods. That sale trajectory and the growth of competitors like Amazon should be more concerning than inventory shifts, which retailers do all the time.  

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  • Report this Comment On September 25, 2013, at 6:32 PM, DesertHippie wrote:

    Maybe it is the beginning of the end of Walmart. But is it a surprise? Really? Not so much, no. They won't hire enough employees to keep the store shelves stocked properly. You cannot buy what you cannot put in your cart. Then, to offset stock losses I assume, the price of everything in the store has been increased significantly. Yes, we notice when items we buy almost weekly go up by almost 30% in one jump. Soooo, the employees cannot keep up with the work demanded of them, they will not hire more employees to keep the store running, and the prices are rising dramatically. Sounds like a formula to encourage consumers to shop elsewhere. If nothing changes, I suspect we will have a new leader for the cost conscious consumer that used to rely on Walmart.

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8/25/2016 4:45 PM
^DJI $18448.41 Down -33.07 -0.18%
^GSPC $2172.47 Down -2.97 -0.14%
S&P 500 INDEX CAPS Rating: No stars
WMT $71.22 Down -1.01 -1.40%
Wal-Mart Stores CAPS Rating: ***