Walmart Changing - for better or worse?

AGA7d

Today WMT's stock action is strange - stayed down for most of the time in the day while market surged. The volume is ~28 milllion, more than doubling the typical vol.

According to AP, there might be two reasons here:

"1. For one, Wal-Mart's shares dipped only slightly when the rest of the market plunged Friday as investors sought the safest havens. Wal-Mart's shares closed at $52.40 Friday, down only 2 percent from the beginning of the week. In contrast, department store operator Macy's Inc. closed at $21.94 on Friday, down more than 7 percent in the same period.

2. The Financial Times reported Friday that Wal-Mart plans to increase sales by $100 billion in the U.S. by opening urban stores. The article quoted Eduardo Castro-Wright, Wal-Mart's head of U.S. operations. Sozzi said that would require "sizeable" capital investment, marking a shift in strategy for the retailer, which has been cutting back on capital expenditures. Even though Wal-Mart stores in urban markets would be smaller than those in more rural areas, it's more costly to build because of pricier real estate."

There was a previous announcement a while ago that might also have irked investors - cutting prices on a wide range of merchandises. It may suggest that the sales are not up to expectation. There are also reports that Walmart under-stocks in many stores.  

Additionally, WMT is testing new store format, more popular products, less variety, wider aisles - to me, it is trying to follow a retail trend to improve shopping experience. But personally, I don't like the change, especially the less variety part which was a big draw for many shoppers. Appears to me, WMT is emulating Target and losing its own identity.

WMT is also engaging an online price war with Amazon - its online sales grow rapidly in the last two years, though still far behind Amazon.

As for building more smaller, urban stores, I think it is a positive move. Right now, CRE is in the low of its cycle which makes the new development less costly. Also, the AAA rating means that WMT will pay the lowest interest for the new bonds. Of course, it will be competing with the drug stores like CVS, Walgreen etc. I think its pricing will definitely bring in customers and CVS/WAG should be worried.

The ER is coming in about a week, the low share price reflects the subdued expectation from investors.

To me the low valuation is compelling. Despite some issues, its long term prospect remains bright.

xnz

thanks for sharing