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Wal-Mart faces chill of sales slowdown
Wal-Mart Stores' run as this year's best-performing Dow Jones Industrial Average company may end after the world's largest retailer said sales growth will slow this month.
- Bloomberg
- Published: 00:01 August 9, 2008
New York: Wal-Mart Stores' run as this year's best-performing Dow Jones Industrial Average company may end after the world's largest retailer said sales growth will slow this month.
Wal-Mart declined 6.3 per cent on Thursday, the steepest drop since 2002, after it said sales in stores open at least a year may rise as little as 1 per cent, which would be the smallest gain in five months.
The company said most shoppers had spent the US tax rebates that spurred sales.
"The stock has risen a lot, and the probability is pretty low that it keeps growing at that rate," Don Yacktman, who oversees $900 million at Yacktman Asset Management, said. The Austin, Texas-based firm sold 80,000 Wal-Mart shares, or half of its holding in that stock, since April.
Wal-Mart had climbed 28 per cent this year before yesterday, compared with the 30-company Dow's 14 per cent drop. After yesterday's decline, Bentonville, Arkansas-based Wal-Mart had a gain of 20 per cent, just ahead of International Business Machines Corp.'s 19 per cent increase.
Chief Executive H. Lee Scott and Eduardo Castro- Wright, the US stores chief, weren't available for interviews before quarterly earnings August 14, Wal-Mart spokesman John Simley said yesterday.
Spending of tax rebate cheques, part of the government's attempt to rejuvenate the economy, helped produce Wal-Mart's biggest same-store sales gains of the year in May, with a 3.9 per cent increase, and June, with a 5.8 per cent jump.
The company lured shoppers battered by soaring gasoline and food costs with $4 prescriptions and discounts on groceries and flat-screen televisions as steep as 30 per cent.
Total sales in the first half of the fiscal year that started on February 1 climbed 9.6 per cent. Total sales in July increased 9.4 per cent.
"We are seeing the end of a catalyst," Lauri Brunner, a Minneapolis-based analyst for Thrivent Asset Management, said. Thrivent manages $73.2 billion in assets, with 1.5 million Wal-Mart shares through June.
"August represents even further deceleration," Mark Miller, an analyst with William Blair & Co, wrote in a note to clients. Wal-Mart's forecast of same-store sales growth of 1 per cent to 2 per cent this month trails his third- quarter estimate of 2.5 per cent.
Miller cut Wal-Mart to "market perform" from "outperform" Thursday on the view that the retailer's sales and profit growth will slow.
Investors had put the shares on course for their biggest annual gain in nine years. The stock, still headed for its best performance since 1999, is unlikely to duplicate its first-half gains, said Jeffrey Malcom, a portfolio manager at Horan Capital Management.
Scepticism
Reflecting the scepticism about the shares, more stock had been sold short last month than at any time this decade. Short sellers borrow stock to sell in the hopes of buying the shares back later at a cheaper price.
Wal-Mart may advance 12 per cent in 12 months, based on the average of analyst target prices compiled by Bloomberg. That compares with the 20 per cent average share-price gain predicted for the companies traded on the Standard & Poor's 500 Retailing Index.
"As they get bigger in the US, they're going to have to look elsewhere for growth, which is no easy feat," Yacktman said in the Aug-ust 6 interview.
Wal-Mart generates 24 per cent of sales overseas, leaving it reliant on the US while it slows construction of super centres that sell groceries and general merchandise. The retailer said in June it plans to increase square footage of stores by 5 per cent to 6 per cent this fiscal year, down from 7.7 per cent growth last year.
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