In the world of business, Wal-Mart (WMT -2.45%) is an anomaly.
Walmart, the American original. Source: Wal-Mart
Founder Sam Walton ran Wal-Mart from its beginning (when that store you see up there was built) up until 1988, at which point David Glass was named CEO. Glass was in turn replaced by H. Lee Scott in 2000, who in turn passed the baton to Duke in 2009. Now the history of Wal-Mart CEOs looks like this:
|
CEO |
Tenure |
Joined Wal-Mart |
|---|---|---|
|
Doug McMillon |
2014-? |
1984 |
|
Mike Duke |
2009-2014 |
1995 |
|
Lee Scott |
2000-2009 |
1979 |
|
David Glass |
1988-2000 |
1976 |
|
Sam Walton |
1962-1988 |
Present at the beginning |
Sources: Company website , media reports.
And what does "this" tell us about Wal-Mart's bosses? Well, the first thing that jumps out at you has to be the steep declines in the length of time that CEOs stick around at Wal-Mart. David Glass's 12-year tenure was less than half as long as founder Sam Walton's. Lee Scott's tenure was only three-quarters full, compared to Glass. When Duke gives up his chair, he'll have run Wal-Mart for only five years.
The shrinking length of tenure for each CEO gets an investor to wondering: Are Wal-Mart's shareholders getting impatient with their CEOs' performance, or are the CEOs themselves getting frustrated with their inability to turn Wal-Mart around?
Super no more? Source: Wal-Mart
Big trouble in Bentonville
Because make no mistake: Wal-Mart is stuck. The world's biggest retailer it may be, but lately, getting bigger has gotten harder for Wal-Mart.
Revenue growth has slowed substantially, averaging just 3.3% over the past 5 years. Granted, GAAP profits have grown a bit faster (less than 5% annually. Hooray?). But actual free cash flow has declined substantially -- from $11.6 billion in 2009 to just $9.5 billion over the past 12 months. Over the past five years , operating cash flow at Wal-Mart averaged just 1.4% annual growth, lower than the rate of increase in capital spending. Wal-Mart's tangible book value averaged a similarly meager 1.4% growth annually.
The trouble with Wal-Mart CEOs
Despite these disturbing numbers, Chairman Rob Walton is giving CEO Duke a hero's sendoff, praising the exiting CEO for inaugurating "a time of strength and growth at Walmart," and saying the outgoing CEO "delivered strong financial performance."
Shareholders disheartened by the anemic growth of the past five years might be surprised to hear that. And yet, they may not be able to hope for much better performance from Duke's replacement.
Like Duke, Doug McMillon ran operations at Walmart International before being named CEO, and like Duke, he ran Sam's Club before that. In both jobs, he turned in performance far superior to what Wal-Mart as a whole produced, growing International revenues by 40% since 2009, for example -- several times faster than the growth that Walmart U.S. produced.
Don't be too impressed by these numbers, though. When Mike Duke , ran Walmart International from 2005 through 2009 , he too grew sales -- even faster than McMillon did. That didn't translate into an ability to spark growth throughout the company when he got the top job, though.
Foolish takeaway
Seems to me, extrapolating a new CEO's sales success within the smaller sales base of International, into an assumption that he will enjoy similar success once given control of Wal-Mart's much larger domestic business as well, is a sucker's bet. No matter who's given the top job, upon taking it he is immediately shackled by "the law of big numbers" -- the incredible difficulty of growing a business that's gotten too big to grow much bigger.
The surprising shrinkage in how long it takes shareholders -- and CEOs -- to realize that a CEO isn't performing as expected, and replace the "underperformer," suggests Wal-Mart's new CEO could get booted even quicker than its last.
