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The share price of global retail giant, Walmart (NYSE:WMT) hit the wall on Wall Street yesterday, dropping nearly 10% from 66.61 to 60.02. The company announced its projected earnings for the next three years. It did not set well with the people to whom those earnings mean the most – Walmart investors.
Walmart investors have not been a happy lot lately as it is. One year ago, 17 October 2014, Walmart shares were at 74.00, a price they had sustained for about 18 months. The share price peaked at 90.45 on 08 January this year, but has been in such decline since that time that it has been the second worst performer on the Dow this year. The company has been plagued recently by declining profits and floundering international sales.
In the tradition of his predecessors, President and CEO Doug McMillon continues to promoted the silver-tongue approach to the future, promising long-term growth potential despite current conditions and a dismal short-term outlook. Readers know that I am all about the long-term, but being as intimately involved with Walmart as I have been over the years, I think that the company is trying to paint a prettier picture with the same paint they used to paint themselves into the corner they are currently in.
For most companies, this situation might be a bit more desperate. Speaking to a TV audience yesterday, McMillan was like a Teflon™ turtle, refusing to allow a bleak long-term outlook stick to him or the company. Essentially, he said that Walmart is so big that it is immune from disaster by its sheer size. I recall a man named Goliath that thought the same thing. Then there was the empire of Alexander the Great which, despite its breadth and wealth, collapsed nonetheless.
The problem with Walmart’s long-term plan is the short-term price that has to be paid. That is really what McMillan was trying to explain as he appealed to investors to stick with Walmart through the coming difficult years in order to be part of the success he is projecting.
It’s a plan that will bear fruit only over the long term, and in essence the retailer is asking for patience (and making that a bit easier to swallow with a $20 billion buyback plan). – WSJ
McMillan said, “These are exciting times in retail given the pace and magnitude of change. We have strengths and assets to build on and are making progress to position the company for the future.” He added that, “We are actively reviewing our portfolio to ensure our assets are aligned with our strategy. But we will be thoughtful in our approach, recognizing our responsibility to drive shareholder value.”
No doubt, some of what McMillan is blowing is smoke – either that or he is smoking something special. On the other hand, the costly capital investment steps that the company is expecting to take need to be taken at some time, so why not now?
Walmart shares are so active on the New York exchange today that trading is on its way to double its average 9.8 million per day before noon EDT. Short term investors are bailing and opportunists are seizing the day as the share prices continues to plunge. As of 11:30 EDT, Walmart shares are down an additional 1.2% to 59.31, a new 52-week low.
We do not know what the future will hold. It is obvious that some are skeptical. But others are believers. My personal opinion (not necessarily ADVFN’s) is that Walmart got blindsided by the likes of Amazon, Google, and others. It’s not that they were unaware. It’s that they were more focused on their own operations (not a bad thing) to realize that the Amazon’s of the world were tipping the playing field in their own favor.
It will be interesting to see how this all unfolds.
