Wal-Mart's Broad Makeover May Cause Short-term Sales Weakness, But Long-term Gain

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HEARD ON THE STREET: Wal-Mart's Bid To Remake Itself Weighs on Sales

• Summary: Wal-Mart, the nation's largest retailer by sales, has begun a massive makeover with the goal of luring more affluent customers to buy merchandise in its stores. Remodeling of almost half its stores, cutting back on inventory and reducing labor costs are key elements in the restructuring, which has caused some disruption in its operations and pressured sales. The stock is down about 9% so far in July, hampered further by a Merrill Lynch downgrade. Marketing based on 'always low prices' is out; branding as a 'lifestyle' retailer of hip apparel and housewares is in. It's possible that the makeover will cause the company (including its Sam's Club warehouses) to post its first same-store sales decline since 1995 within this quarter. Bullish investors are buying on the weakness, believing the reforms will reignite growth down the line. Budget retail competitors Target and Family Dollar Stores have also seen softness, but their same-store gains for June came in significantly better than Wal-Mart's.
• Comment on related stocks/ETFs: Whitney Tilson is among the bulls on WMT -- his fund T2 Partners lists it among their five oversized positions, as it reminds him of McDonald's (MCD) in early 2003. Meanwhile, Glenn Curtis of Investopedia Advisor is particularly troubled by Wal-Mart's acknowledgment that foot traffic is declining.