Zulily, Rite Aid Continue Incredible Rallies; Dow Slips

Wal-Mart stock manages to eke out gains, despite long-term threat to cost structure

Mar 12, 2014 at 6:22PM
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Stocks finished sideways in choppy trading today, as continuing tensions between Russia and Ukraine, combined with a lack of new economic data, made for a quiet day on Wall Street. Factor in lingering concerns stemming from a sharp, sudden decline in China's export numbers, and it's shocking investors weren't decisively bearish Wednesday. The Dow Jones Industrial Average (DJINDICES:^DJI) finished as the only major U.S. index to lose ground, and even it only retreated 11 points, or 0.1%, closing at 16,340.

Shares of the international retailing giant Wal-Mart (NYSE:WMT) outperformed most other blue-chip peers Wednesday, tacking on 0.8%. While the stock's performance was nothing to complain about today, Wal-Mart's longer-term investability is far more dubious. No one's debating the fact that Wal-Mart's unprecedented scale, distribution, and familiarity give the company a considerable head start over would-be competitors, but its profit margins are in serious jeopardy. Specifically, Wal-Mart could see labor costs skyrocket if and when minimum wage rises above $10 an hour, as President Obama has proposed. My colleague Andrés Cardenal makes a compelling case that Wal-Mart's low-paying jobs have already cost it dearly in recent years as competitors like Costco attract better talent, see less turnover, and post better returns for shareholders.

Speaking of long-term viability, drugstore chain Rite Aid (NYSE:RAD) has done an exemplary job of keeping shareholder interests in mind when making strategy decisions. In fact, the company could probably drum up some nice side business by stocking shelves of hearing aids, considering the deafening applause from Wall Street in the past year. Rite Aid stock reached 52-week highs Wednesday, as Goldman Sachs upgraded shares, bestowing them with a "buy" rating after the company projected same-store sales growth of 2.5% this year, up 0.7% from 2013. Shares leapt 7.5% on the news.

Finally, shares of e-tailer and women's apparel company Zulily (NASDAQ:ZU) soared 8.7% higher today, as investors rushed to invest in the young service. Zulily's stock has been unseasonably hot since its IPO less than four months ago, when it nearly doubled on its first day of trading. Taking a look at the company's financials, it's tough not to be proverbially frothing at the mouth as an investor. Sales surged 3,685% between 2010 and 2013, and last year Zulily turned its first annual profit as well. With that in mind, all that glitters isn't gold, and Zulily's fairytale journey may not have a happy ending for new investors -- especially if the company can't keep up the incredibly high rate of growth Wall Street has come to expect.

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John Divine has no position in any stocks mentioned. You can follow him on Twitter, @divinebizkid, and on Motley Fool CAPS, @TMFDivine.

The Motley Fool recommends Costco Wholesale and Goldman Sachs and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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