Wal-Mart Stores (WMT) Suffer a Double-Whammy
Were it just higher wages making it tougher for Wal-Mart Stores (WMT), that might be defendable. Or, were it just a revenue headwind the world's biggest retailer was facing, the market might be willing to give the company the benefit of the doubt. But, when higher wages and lower revenue both work together to really crimp the company's bottom line, it can come as no real surprise Wal-Mart shares were down nearly 5% following an alarmingly disappointing fourth quarter report.
The good news is, Wal-Mart Stores managed to top its earnings estimates for the fourth quarter, reporting a profit of $1.49 per share versus expectations of only $1.46 per share of WMT.
The bad news is, that was the only good news the company had to offer on Thursday. Revenue of $129.7 billion fell a little short of the expected $130.4 billion. And, sales fell 1.4% on a year-over-year basis while per-share earnings were down 7%.
Currency fluctuations didn't help; revenues would have grown a little more than 2% had the value of the U.S. dollar not soared between then and now. Even so, operating income was down 13% on a constant currency basis, and same-store sales were up a scant 0.6%. That's not going to cut it, particularly when a company-wide wage increase plan was put into place in the middle of last year.. a wage hike that should take roughly 30 cents off the per-share bottom line this year. On that note...
The real damage done to WMT shares on Thursday, however, may have been the result of a disappointing outlook for the current year. The retailer had previously suggested sales growth on the order of 3% to 4%. Now it's expecting mostly flat comparisons with 2015's top line. Earnings are expected to fall between 8% and 22% for the current quarter.
While higher wages have been deemed one of the key culprits behind the demise of Wal-Mart, it's not just wage expenses, however, getting in the way. In many regards, the mistakes Wal-Mart made are starting to catch up with.. like letting Amazon.com (AMZN) get so far ahead of it in the online shopping arena . It's also worth starting to ask the question of whether or not the worthy, addressable markets Wal-Mart Stores can operate in are reaching the point of saturation. They probably are.
Whatever the case, the bad news sent WMT shares sharply lower after they'd spent the last two weeks testing the 200-day moving average line (green) as resistance. The 50-day moving average line (purple) has stepped in as support, and may end up giving the stock another chance to break above the critical 200-day line. But, there's much less to entice would-be Wal-Mart investors now than there was yesterday.
