Thursday, May 17, 2007

Wal-Mart (WMT): Time For Scott To Go

World's biggest retailer Wal-Mart (WMT) said Tuesday quarterly profits rose 8% to $2.83 billion ($0.68/share) and revenue rose 8.5% to $86.41 billion -- hitting analyst estimates exactly. Wal-Mart said Sam's Club and international operations were its strongest areas, while food and generic drug sales were large growth sections. It expects domestic comparable-store sales to rise 1-2% in the coming quarter after a 0.6% first-quarter rise. It forecasts Q2 earnings from continuing operations of $0.75-0.95; analysts had been calling for $0.79. In the company's earnings press release, CEO Lee Scott shrewdly observed: "While these are record sales and earnings, we feel there was an opportunity to have done better,"

Thanks for the heads up Lee. Kind of like General Custard saying "we should have brought more guys"

It is time for Lee to go. It is not for the standard reason people give, the stagnant share price. Let's be honest here. If you were dumb enough at the turn of the century to pay 60 times earnings for a massive retailer growing at less than 1/2 that, you deserve the predicament you are now in. Given Wal-Mart's scale, it would have been impossible for ANY CEO to get performance out of the company to justify that high of a PE ratio and avoid the eventual share decline. The price of the stock had to fall.

Why should Scott go? I have been in 4 Wal-Mart the past 2 weeks and one thing sticks out. They have not changed at all the past 7 years. Everything feels the same, the look , the merchandise, the people, everything. The worst part is, there seems to be no plans to change anything. If you are struggling with earnings and growth because you have become stale, do something different. You just can't sit there, no matter who you are. How about this? Let's update the clothing. We have heard for years that Target has had great success with low cost brand name designer clothing. Wal-Mart's is just low cost and in an increasingly brand conscious world, it just is not cutting it. Let spruce it up a bit. Maybe we could take some of the $7 plus billion you are sitting on and buyback a meaningful amount of shares? Wal-Mart is increasing cash at an over a billion dollar a year pace and last year spent just over that on share buybacks. Let's take $3 billion and make a dent in the shares outstanding ( 1.5%) and give more back to shareholders if we are not going to put it work anywhere else.

Here is another issue. When I go into as Target, I can easily fins my way around because the layouts of the stores are very similar. It makes may shopping experience less frustrating. Are there any two Wal-Marts that are laid out the same? It makes it very difficult to "just run in" to a Wal-Mart to pick something up. Given the choice, I will choose a Target for thje convenience.

Wal-Mart's image has taken a hit. When people want something "cheap" they think Wal-Mart, when the want a value, they think "Target". Because Scott seems to have no desire to change that, it is time to go....

I hold no position in any company listed above.

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