Why Was There No Q&A on Wal-Mart's Earnings Call?

Why isn't Wal-Mart interested in an open dialogue with its investors?

Jan 13, 2014 at 1:59PM

Mike Duke analyst meeting remarks 2013

CEO Mike Duke remarks at the 20th Annual Meeting for the Investment Community, Source: Wal-Mart

An earnings call provides a way for investment analysts to ask probing questions. A prerecorded presentation by the management team provides informative details, but the real fun comes during the live question-and-answer session at the end of every earnings call -- well, every call except Wal-Mart's (NYSE:WMT).

When a company doesn't provide a way for analysts and investors to have an open question and answer session this hurts both the company and the investor. The company lacks an open relationship with its investment community and the investor lacks the ability to listen to the tremor of the CFO's voice when s/he doesn't know the answer to a question.

The importance of earnings calls
Before 2000, earnings calls primarily served large investors and analysts. Journalists and small investors did not receive invitations to the calls which gave some investors more advantage, through selective disclosure, than others. In 2000, the Securities and Exchange Commission required companies to disclose their earnings material to everyone at the same time, which gave everyone the right to participate and listen to the earnings call at the same time.

Wal-Mart is unique. It offers an earnings call, but callers aren't allowed to ask questions on the call. They can ask questions by reaching out to Investor Relations after the call, but they can't ask questions on the call itself. Make no mistake -- this is unusual. Most companies allow an open Q&A session immediately following the call, even if the call is prerecorded.

According to Carol Schumacher, Vice President of Investor Relations at Wal-Mart, investment relations executives at Wal-Mart do take questions from analysts and investors in private phone calls after the recorded call is played. However, this doesn't make up for the benefit of being able to hear the answer to everyone else's questions, or even the questions themselves. There's some value in a candid back-and-forth between shareholders, analysts, and investment professionals. "It's part of the company's history," explained Schumacher in defense. Reverence to the past is nice, but a wall of pre-written summaries just isn't meaningful without an open Q&A.

Ditch the prepared remarks
Consultants like McKinsey and Company think CEO's should ditch their prepared text "and allow for more time for thinking. The advantage of such an approach is obvious—questions are better when the data are clear and understood by the participants," the firm says.

Of course the issue with an unprepared question and answer session is stock price. Executives worry that something said on the earnings call will trigger a sell-off, but that concern may be limiting the company.

Family Dollar Stores (NYSE:FDO) just had its first quarter earnings call. The earnings report was released a few hours before the call. The stock opened at $61.09, after a previous day's close of 66.34. Then, after reaching a high of $65.33, closed the day out at $64.88 -- that's quite a recovery. Clearly, the market agrees with the "departure" of the President and thinks the management team may have a chance, but the stock only recovered after the call. "What matters is the longer-term value appreciation," McKinsey argues, "not the day-to-day volatility—and in any case, volatility can be avoided if data are presented clearly in the release..."

In Family Dollar's case, the question and answer session allowed analysts and investors to clarify rumors and allay concerns about lower sales and management changes. The CEO was candid and the CFO answered questions with confidence, which may be part of why the stock ended the day at a better price than it was during the call.

There may be risks in full disclosure
The other concern is that Wal-Mart just isn't interested in an open dialogue -- the risks outweigh the benefits. "It is hard to imagine why every company can't disclose data more readily," said the McKinsey report, "unless they're deliberately being obscure or simply unable to measure the data internally. Either possibility should make investors more skeptical about underlying performance." Right on!

News Corp sits on the other end of the spectrum from Wal-Mart. It believes in total disclosure, full transparency, and is one of the only companies that allows reporters to ask questions on the earnings call. So, while Wal-Mart won't allow public questions and answers from anyone, News Corp has opened its doors to some of its most ardent critics.

The Foolish bottom line
An earnings call is generally an hour long, with 15 to 30 minutes set aside for questions and answers. This common format allows the investor to gain confidence in the management team. Sure, Wal-Mart's annual sales are larger than the GDP of Ireland, but not offering analysts and investors the opportunity to ask questions in an open forum is a missed opportunity to connect with, and attract, investors.

What else is wrong with Wal-Mart?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they’re planning to ride the waves of retail's changing tide. You can access it by clicking here.

Fool contributor B Bryant has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers