What analysts said about Walmart

Analysts don’t like surprises, especially the negative kind, where results are worse than forecast, so there wasn’t a lot of love for Walmart earlier this week after the company reported a disappointing 1.8% fourth quarter comp decline. Never mind that earnings per share exceeded consensus estimate by three cents, analysts were clearly peeved by the top line shortfall at the stores division, and having been burned by the company’s earlier guidance expressed little confidence in the company’s ability to deliver on its strategic objectives.

Deutsche Bank analyst Bill Dreher, who has a hold rating on Walmart, had this to say about the company: “Walmart’s core customer remains economically challenged, and begrudges Walmart’s recent merchandising errors. This will likely trump inflation and we model fiscal year 2011 comps flat. Today’s report also raised investor fears that EPS results on cost cuts may become more difficult to achieve in 2011. We see little Walmart can do quickly to drive shares higher as they struggle to define a new strategy and correct past errors.”

Meanwhile, J.P. Morgan analyst Charles Grom, in a research note titled, “Bentonville…We have a problem,” said it appeared the issues facing Walmart were far worse that imagined the prior week when the firm downgraded the company to neutral and suggest investors move to the sidelines.

“To this end, we’re increasingly concerned that many of the key culprits behind the unfavorable trends (i.e. weak traffic, lost share in key consumable categories, and discretionary weakness) are likely to persist not only in 1Q, but perhaps the balance of the year,” said Grom. 

“Said differently, Wal-Mart appears to have alienated or displaced many low income and upper income shoppers over the past few years through its wide array of merchandise assortment changes. Unfortunately, once that customer has found a replacement shop, it can be very challenging to recover -- ask Safeway or Supervalu.”

Over at Sanford Bernstein, Colin McGranahan said, “With traffic in the U.S. still negative, consumables comps turning negative, and discretionary categories remaining weak, it's hard to see any signs of improvement from the merchandising reversals and initiatives undertaken earlier in the year.”

He also commented that the four-point plan announced by Walmart U.S president and CEO Bill Simon to improve the productivity of existing stores was hardly revolutionary and questioned whether incremental change would yield anything other than incremental results.

“Clearly, a better spending environment for the low-end consumer would help, but that is likely to take some time, while higher prices for gas, food, apparel, etc. are likely to impact materially lower-end consumer discretionary spending,” according to McGranahan.


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