Walmart Disappoints: Buying Opportunity or Time to Sell?

Wal-Mart is blaming the tough industry environment for its lackluster performance, but competition from the likes of Amazon and Costco seems to be a much more serious threat for the company in the long term.

May 20, 2014 at 9:07AM

WMT Chart

WMT data by YCharts.

Wal-Mart (NYSE:WMT) was falling by nearly 2.5% on Thursday after reporting disappointing results for the quarter ended on April 30. While management blamed the harsh winter and weak consumer spending for the company's uninspiring performance, competition from both online retailers such as (NASDAQ:AMZN) and traditional brick-and-mortar players like Costco (NASDAQ:COST) could be a more challenging threat in the long term.

Is the recent weakness in Wal-Mart a buying opportunity, or should investors stay away from the company?

Cold performance
Total sales during the quarter increased by 0.8% to $114.96 billion; this was lower than the $115.96 billion forecast on average by Wall Street analysts. Sales excluding foreign exchange fluctuations grew 2.1% versus the same quarter in the prior year, while membership and other income increased 4.8% to $793 million.

Comparable-store sales excluding fuel declined by 0.2% on the total company level in the U.S. While comparable sales at Wal-Mart stores in the U.S. were almost flat with a decline of 0.1%, performance was worse at Sam's Club, where comparable-store sales excluding fuel fell 0.5% during the 13 weeks ended on May 2.

International sales declined by 1.4% on a reported basis; however, currency fluctuations were responsible for most of this fall. International sales adjusted for currency movements increased by 3.4% versus the prior year.

There were some positive spots in the report, such as an increase of 27% in e-commerce sales and a jump of 5% in comparable sales in the company's Neighborhood Markets segment. Smaller stores seem to be helping in terms of sales performance, so Wal-Mart is planning to focus on Neighborhood Markets and Wal-Mart Express when it comes to growth initiatives.

Still, this is hardly enough to compensate for what was a broadly weak performance from the company in terms of sales.

Earnings per share also came in below expectations at $1.10 per share, a decline of 3.4% versus the same quarter in the prior year and lower than estimates of $1.15 for the quarter.

Wal-Mart vs. Costco and Amazon
Management blamed the unusually harsh winter for the company's lackluster performance during the quarter. "Like other retailers in the United States, the unseasonably cold and disruptive weather negatively affected U.S. sales and drove operating expenses higher than expected."

However, guidance for the second quarter of fiscal 2015 was also quite weak. Management expects comparable sales to be relatively flat during the quarter ended on Aug. 1, while earnings per share are forecast to be in the range of $1.15 to $1.25, versus $1.24 per share in the same period last year.

Wal-Mart's weak guidance could be interpreted as an implicit admission that the company's problems are much more permanent than unfriendly weather, and competition from the likes of Amazon and Costco seems to be a more serious problem than transitory external conditions

Amazon is unquestioningly the most disruptive force in the retail industry over the last several decades. An efficient business model, relentless innovation, and the willingness to operate with razor-thin profit margins in order to gain market share versus the competition make Amazon a dreaded competitor in the business.

Amazon has been gaining participation in different retail categories over the last several years, and the company is clearly outgrowing Wal-Mart, as well as the rest of the industry. Amazon produced revenues of $19.74 billion during the first quarter in 2014, an impressive increase of 23% versus the same period in the prior year.

Costco has also been outgrowing Wal-Mart and its Sam's Club division in recent years, and there is no reversion in the trend judging by recent sales reports. Costco announced a big increase of 7% in total sales during the month of April; comparable-store sales excluding fluctuations in gasoline prices and foreign currencies increased by 5% in the U.S. and by a stronger 7% in international markets during the month.

When compared against the stagnant, or even declining, sales reported by Wal-Mart in general and Sam's Club in particular, it becomes quite clear that Costco is proving it has a superior ability to sail through the harsh winter and unfriendly consumer environment.

Foolish takeaway
Wal-Mart is blaming its disappointing performance on weather conditions and weak consumer spending. However, competitors such as Amazon and Costco are doing materially better than Wal-Mart, while gaining market share versus the company in the savagely competitive discount retail industry. Unless Wal-Mart finds a viable strategy to overcome its weaknesses versus the competition, things could continue getting worse for the company before they turn for the better.

You should not miss our top pick for 2014
Give me five minutes and I'll show you how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Andrés Cardenal owns shares of The Motley Fool recommends and owns shares of and Costco Wholesale. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers