Wal-Mart's Profits Attributable to Sad State of Economy

BENTONVILLE - Wal-Mart Stores, Incorporated (WMT) reported sales figures for the four-week periods ending February 27, 2009 and February 29, 2008. The strong results are both the mark of a company that has fought to remake its dowdy image - while embracing its roots as a low-cost retailer.

Wal-Mart is one of the few stalwarts to actually expand business amidst today's financial carnage and the glowing statistics are not to be mistaken for a grandiose harbinger of U.S. economic vitality.

Net sales at the world's largest retailer increased from $29.2 billion to $30 billion during the month of February over the last year. The 2.8% increase would have been even more stellar if not for a stronger dollar and currency exchange rates that adversely affected international sales by 20.7%. Overall, Wal-Mart February U.S. net sales surged by 8.1%.

Adjusting for plunging gasoline prices that have slashed fuel revenue, Wal-Mart, Inc. same-store sales have ramped up by 5.1%. The comparable store statistic designates locations that have been open for more than one year and is a critical indicator of retail success.

Again, we would strongly advise against analyzing Wal-Mart reports as a benchmark of the overall economy. Counterintuitively, the findings are attributable to worldwide economic carnage. Per Bentonville management:

"Customers continue to focus on necessities and avoid purchasing discretionary items in home, apparel, and shoes. Customers come to Wal-Mart because they trust our price leadership."

This does not bode well for retail at-large.

Obviously, the consumer has pulled back, and is content to purchase the most basic of items. Higher end retailers are being crushed, while mid-level stores are adversely affected by penny-pinching shoppers that have downgraded to Wal-Mart.

Nordstrom (JWN) released a miserable February report detailing a 15.4% decline in same store sales; and heated, cheap-chic rival Target (TGT) is feeling the heat with a 4.1% downdraft in comps. Although the world economy is currently under siege from a wretched real estate bust, credit debacle, and stock market rout - we must speculate that a New Era has indeed, dawned.

Frivolous, grandstanding waste is not cool. Even P. Diddy is foregoing The Bling and abandoning his private jet.

Disclosure: no positions

Comments

[time_for_real_solutions]

It seems to me that the real problem in our economy is that small and medium business has been cut off from capital. The large banks that received the TARP funds are hording cash and paying themselves bonuses. I think it is time for Wal-Mart to pursue an Industrial Bank once again. If they were to pursue the bank with a plan to lend money to small and medium businesses that create jobs not only would they get a warm reception but the plan might get fast tracked and it would give them some real leverage against the card check legislation which will only destroy jobs.

2009 Mar 11 03:22 PM