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Analyst: Shake Stagnant Walmart Stock Price – Increase Sales, Spin Off Division

By: 15 July 2010 3 Comments

ROGERS — It’s no secret that stock in Bentonville-based Walmart has stagnated for the past several years.

There are no new stories in Bentonville of the store manager whose stock value increased and then the stock split, increasing wealth. That’s how past Walmart employees became millionaires.

Walmart (NYSE: WMT) stock closed at $50.41 per share Thursday, up 67 cents. In the past 52 weeks, the share price ranged from a $56.27 high to a $47.77 low.

The retailer’s stock price remained unimpressive, despite Walmart growing sales 124 percent and earnings per share by 168 percent in the past 10 years.
“Sometimes, two out of three IS bad,” reads the title of a financial performance graph from Boston Mountain Money Management in Northwest Arkansas.

Walmart operates three divisions: Its U.S. division, which includes Neighborhood Markets, Supercenters and discount stores; Sam’s Club, its warehouse club division; and International, which operates stores under various names in other countries.

“Clearly, Walmart U.S. is the cash cow and International is the growth vehicle,” the July 13 note from Boston Mountain Money Management stated.

Walmart U.S. reported $62.32 billion in sales for the first quarter of fiscal year 2011, up 1.1 percent from the first quarter of last year, which in Walmart’s world was fiscal year 2010.

The retailer has its fiscal year numbered according to the last month in the fourth quarter, which usually is January. The new fiscal year 2011 began in February.

Walmart’s  International division reported about $25 billion in sales, a 21.4 percent increase from fiscal year 2010’s first quarter. That is largely because currency exchange rates were favorable after being a drag on the retailer’s sales for several quarters.

U.S. firms convert foreign sales into U.S. dollars. The currency exchange rate can affect sales, and make strong stales look weak if the dollar is strong and weak sales look strong if the dollar is weak.

Say  a customer in Mexico spent 1,000 pesos on Walmex merchandise on a given day. The exchange rate that day was 13.48 pesos to the U.S. dollar, so the purchase equaled $74.18.

But, a month later, the exchange rate changed. Then, 1,000 pesos equaled $76.05, making it appear sales increased, although the Mexican customer spent the same number of pesos.

Sam’s Club made up the rest of the first quarter sales with $11.74 billion, a 4.6 percent increase from the same quarter of fiscal year 2010.

Though the sales were up for each division, including a large increase in International, stock prices do not reflect the International performance.

International sales surpassed $100 billion for the first time in fiscal year 2010, making up about 25 percent of Walmart’s more than $400 billion in annual revenue.

However, a 10 percent growth in International sales only adds 2 percent to Walmart’s overall growth rate, according to Boston Mountain Money Management.

“The company can also add another 1 percent to 2 percent to its earnings per share growth rate by buying back shares,” the July 13 note stated.

Walmart often buys back its own stock. The theory is that fewer shares available on the market will equal a greater value for each share of stock.

The retailer’s board on June 4, the day of the annual shareholders’ meeting in Fayetteville, Ark., announced a new $15 billion share buyback. It replaced a $15 billion repurchase initiative from 2009, which had  about $4.7 billion left to buy more shares.

Walmart bought back $3 billion, or 55.6 million shares, of stock in the first quarter of fiscal year 2001, which set a record, said Tom Schoewe, Walmart executive vice president and chief financial officer.

Tom Schoewe, Walmart executive vice president and chief financial officer

Still, the share buyback and International performance combined contribute only 3 percent to 4 percent growth.

Increasing square footage of Walmart U.S. and Sam’s Club stores adds another 1 percent to 2 percent growth potential, Boston Mountain Money Management calculated.

The quickest way for Walmart as a company to grow and, perhaps increase its stock price, is by increasing same store sales. The metric includes sales at stores open at least one year, the benchmark in retail.

A customer could shop at a new store out of curiosity, then return to former shopping habits once the novelty is gone.

Or, Walmart could spin off a division.

“Alternatively, Wall Street could value Walmart higher if International and Sam’s were spun out, an analysis we’ll save for an upcoming issue,” the July 13 Boston Mountain Money Management note concluded.

Sam’s Club relocated from the main Walmart headquarters complex at Eighth Street and South Walton Boulevard in Bentonville earlier this year. The warehouse club division now is headquartered in a multistory building near Buffalo Wild Wings and several automotive dealerships along Moberly Lane in Bentonville.

About: Lana F. Flowers:
Lana F. Flowers is a gifted Arkansas reporter who can handle news about Walmart and retail, movie and book reviews, human interest stories, features and anything else you'd care to mention. She lives in Rogers, Ark., with her husband Jesse, daughter Layla, cats Lottie Boots and Emmy, and dog Fuzzy. Send an email -- fashionablewords@yahoo.com

3 Comments »

  • Larry Ash said:

    Lana is indeed gifted. What she has figured out is that WM is just like everyone else, including the federal govt. They really don’t know what they are doing, so they are doing trial and error. Right now the trial is to load their stores with store brands as discounted prices and cut the total amount of inventory on the shelves. Many items people are use to buying have disappeared.

    Fortunately, Harps is usually right across the street and they are continuing to suppy a more normal variety of brands and customer options.

    W*M’s strategy is aimed at the folks suffering from the recession–probalby about 30%. Harps is aimed at the other 70%. Guess who is wining this round?

  • Outdoor Rugs · said:

    the cake recipes on the internet are all very delicious and i want to try and bake all of them “

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