Wal-Mart Has Me Nervous About The Economy

Includes: DIA, QQQ, SPY, WMT
by: Heisenberg Principle

I was edge-of-my-seat anxious for Wal-Mart's (NYSE:WMT) March 5 presentation. I was absolutely certain my bullish stance on the economy would be vindicated, as February had finally come to pass and WMT was sure to continue its staunch defense of its business as it had with its Q4 results. As a reminder, WMT stated:

We are confident that our low prices will continue to resonate, as families adjust to a reduced paycheck and increased gas prices," Simon said. "We see the underlying health of the Wal-Mart U.S. business is sound, and sales trends are similar to what we've demonstrated in the last few quarters.

However, February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.

Due to the slower sales rate in the first few weeks of this year's first quarter, we are forecasting comp sales for the 13-week period from Jan. 26 to Apr. 26, 2013 to be around flat. We continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase.

The presentation started off great. The audience was reminded of the fantastic historical numbers WMT has produced, the amount of cash it's returned to shareholders, the number of customers it gets every week, its strategic plans for the future, etc. However, the tone turned for the worst (to me at least) midway through. Boy was I disappointed.

CEO William Simon mentioned the customer is pressured by "jobs, jobs, jobs, jobs, unemployment, and security." He then mentioned the payroll tax increase and "the customer is figuring out a way to work around it." Translation to me: the customer is cutting spending at places such as Wal-Mart. He then mentioned that the customer is "very sensitive to the run up in gas prices." Very sensitive? Translation again: that sounds to me like decreased spending. On a positive note, he mentioned that the customer continues to "rely" on Wal-Mart. Rely? Am I the only one who doesn't get warm fuzzy feelings when you refer to a customer as "relying" on your company? It's great that customers are choosing Wal-Mart though for price over the competition, but I'd like to see more a uplifting tone as we heard less than 2 weeks ago with the Q4 report stating "business is sound" and "increased activity."

Don't get me wrong. Wal-Mart is a wonderful, very well managed company that will continue to grow over time. I'm concerned about possible near-term weakness and if that's a reflection of weakness in the broader economy. Originally I scoffed at the idea, and I believed Wal-Mart handled the "leaked memo" well and made me feel confident. Now I'm having second thoughts. With the Dow (NYSEARCA:DIA), S&P 500 (NYSEARCA:SPY), and (NASDAQ:QQQ) blasting off, I'm beginning to wonder if now would be a prudent time to take profits several weeks before the Q1 earnings season begins.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.