Woe Is Wal-Mart

For a while now, investors have wondered whether Wal-Mart (NYSE: WMT  ) could successfully jump-start U.S. sales. Alas, fourth-quarter results reveal that it still can't. The Bentonville Behemoth lumbered its way through a woefully disappointing holiday shopping season.

Wal-Mart's fourth-quarter income increased 4.3% to $5 billion, or $1.41 per share. Revenue increased 2.5%, to $115.6 billion. To understand why critics have begun to question the retailer's current strength, take a gander at Wal-Mart's same-store sales figures. Here in the U.S., Wal-Mart's comps fell 1.1% (or a 0.8% decline if you factor in fuel sales).

The discount giant attributed the U.S. comps decline to a slowdown in customer traffic, since average ticket rose a tad from the same period last year. Still, the timing of the fourth-quarter results suggests that Wal-Mart failed to win robust customer interest during the crucial holiday season, even though it was a huge contender in the battle to lure customers with aggressive come-ons.

Offering free shipping and other dubious deals didn't save Wal-Mart's holidays. Plenty of retailers like Best Buy (NYSE: BBY  ) touted similar deals, and the exclusion of hot products like Apple's iPads from Wal-Mart's deal made that offer look a lot less enticing.

This is the seventh consecutive decline in the retailer's quarterly same-store sales figure. That doesn't bode well for Wal-Mart, and definitely makes rivals like Costco (Nasdaq: COST  ) look far more promising at the moment.

In this difficult economic climate, Wal-Mart's core customers are feeling budgetary restrictions. Luring more affluent customers from the likes of Target (NYSE: TGT  ) and Costco is easier said than done. And on the less affluent end, Wal-Mart needs to contend with super-deep price cutters such as Family Dollar (NYSE: FDO  ) and Dollar General (NYSE: DG  ) .

Wal-Mart's desperation to do something about its flagging sales even drove the company to increase some of its prices last year. After building its reputation on rock-bottom prices, Wal-Mart's playing a dangerous game when it makes such moves.

Even though its stock trades at just 13 times earnings, far cheaper than the multiples attached to stocks like Costco, Family Dollar, and Dollar General, Wal-Mart's current growth obstacles make the stock sound anything but worry-free at the moment.

Share your thoughts on Wal-Mart's future in the comments box below, or add it to our My Watchlist feature to keep an eye on its progress.  

Best Buy, Costco, and Wal-Mart are Motley Fool Inside Value picks. Apple, Best Buy, and Costco are Motley Fool Stock Advisor recommendations. Wal-Mart is a Motley Fool Global Gains selection. The Fool has written puts on Apple. The Fool owns shares of Apple, Best Buy, Costco Wholesale, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. 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.


Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 22, 2011, at 7:27 PM, arcflash wrote:

    Walmart was a buy in the Fools 2011 guide to the year ahead. Now its not ? 45 days later ?

  • Report this Comment On February 22, 2011, at 7:58 PM, TMFLomax wrote:

    arcflash,

    We Fools tend to all have differences of opinion, and I wasn't one of the analysts included in the guide you speak of. Here's our disclosure: "We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors."

    Meanwhile, I've recently changed my own opinion of Wal-Mart; I had it as an "outperform" in our CAPS database for a while due to its strengths in a recessionary climate, but given its current struggles in drumming up customer traffic I now have it as an "underperform." Basically, I changed my mind; I now believe Wal-Mart's issues right now are pretty serious and it's not in as good standing as one might think with so many bargain-hunting consumers.

    Sorry about the confusion, but again, Fool content reflects many different opinions from different analysts with different styles (but in general gives investors tons of information to weigh, and that is good for all). Thanks for reading the article and commenting.

    Best,

    Alyce

  • Report this Comment On February 22, 2011, at 7:58 PM, Borbality wrote:

    LONG WMT. it has plenty of room to grow outside of the US. Also plenty of room to raise the dividend. I doubt it will outperform S&P, but I'm looking to beat the bank with this one as a low volatility pick in an uncertain market.

  • Report this Comment On February 23, 2011, at 3:31 AM, wmtworker wrote:

    I work at walmart and buy the stocks through the company plan. No commision and the company contributes $3 in stock for every $20 i buy.

    I'm hopeing it goes down. I buy $20 dollars worth every 2 weeks.

  • Report this Comment On February 23, 2011, at 3:33 AM, wmtworker wrote:

    OH yeah my best to all fools.

    Mike

    enebrial

  • Report this Comment On February 23, 2011, at 12:52 PM, ps56k wrote:

    hey - what happened to Chicks Picks ?

    WMT shot themselves...

    they took away some inventory brands, and now are scrambling to put them back on the shelf.

    Target has added more grocery items, and people are caught in the middle....

    Some of the shoppers that came down to WMT couldn't find the brands, so went elsewhere. Others needed to shave even more pennies, so the "Dollar" groups were shopped. Walmart stumbled while they were ahead in the race, and will not recover at this time.

  • Report this Comment On February 25, 2011, at 1:32 PM, deinfrank wrote:

    Long pick. Strong brand.

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