Wal-Mart's Dismal Same-Store Sales

| About: Wal-Mart Stores, (WMT)


Wal-Mart's comparable store sales have been declining for a full year.

Retailers face serious danger when sales growth stops.

Wal-Mart is neither a growth stock nor a great value in a floundering retail environment.

Wal-Mart (NYSE:WMT) recently reported that it will be laying off 2,300 workers at its Sam's Club subsidiary, reportedly to cut the fat of middle management. Layoffs in and of themselves aren't uncommon at any large company. What's worth keeping an eye on is whether the Sam's Club terminations are a symptom of much larger problems at Wal-Mart. The company has been a giant of retail for decades, but there are signs that its reign is coming to an end.

The king of retail doesn't stay king long

Wal-Mart is certainly the king of retail today, commanding $475 billion in sales in 2013 alone. But the list of retailers that have gone from dominance to mothballs is long and distinguished.

F.W. Woolworth was once one of the largest retailers in the world, creating the modern retail model that Wal-Mart eventually perfected. Started in 1878, the company expanded until sales began to decline in the 1980s, around the same time Wal-Mart began to hit scale. By 1997, Woolworth was completely gone, changing its name to Foot Locker (NYSE:FL) to focus on the remaining sneaker business.

Not long ago, Sears and Kmart were both big names in retail, but they're now a laughingstock of the industry. Kmart went through bankruptcy once in the early 2000s and bought Sears when it emerged under Eddie Lampert's leadership, forming the Sears Holdings (NASDAQ:SHLD) we know today. Now the new Sears is struggling just to stay afloat and may end up in bankruptcy before long.

Wal-Mart's same store sales have turned negative

If Wal-Mart is the next giant retailer to go under, it won't happen overnight. Failure in retail starts with a trickle. Consumer trends make your stores less popular, a rival grows from out of nowhere, and eventually same-store sales begin to fall, and you're on the road to failure.

That last factor is why investors should be concerned about Wal-Mart, because same-store sales were down in each of the last three quarters. Sam's Club has fared slightly better, but still isn't growing as fast as the economy.

Wal-Mart same store sales


Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Wal-Mart U.S. Stores






Sam's Club U.S. Stores






Total U.S.






Source: http://stock.walmart.com/financial-reporting/quarterly-results/

The fourth quarter made a full year of declining same-store sales for Wal-Mart. Retailers were forced to discount heavily this holiday season, and more consumers switched to buying products online.

Those online retailers are now the No. 1 challenge for Wal-Mart. According to its recent earnings release, Amazon.com (NASDAQ:AMZN) had $74.45 million in sales in 2013.

What makes Amazon a bigger threat today is the company's sheer size. It's now bigger than Target, and every percentage point of growth takes growth away from Wal-Mart. In fact, Wal-Mart's budget-conscious consumers are probably more likely to shop on Amazon than Target's (NYSE:TGT) consumers

Will Wal-Mart go under?

The reason that retailers are sensitive to declines in sales is that there is a lot of overhead that goes into selling in brick-and-mortar stores. Wal-Mart spent $89.2 billion on overhead over the past year, and based on current margins and overhead spending, it would only take a 13.6% decline in sales to eat up all of Wal-Mart's profits.

It's far too early to say that Wal-Mart will eventually be a laughingstock in retail like Kmart, but the warning signs are there. Same-store sales are down, consumers are trending away from brick-and-mortar stores as a whole, and Wal-Mart is cutting staff to save costs. If those trends continue, it won't be good for the future of Wal-Mart.

It may be unthinkable to even consider that Wal-Mart could go bankrupt one day, but this wouldn't be the first big-name retailer to go under. As I've pointed out above, once a retailer stops growing, the fall can be fast and furious. At the very least, I'd be wary of Wal-Mart as an investment right now, because it's neither a growth stock nor a great value in a floundering retail environment.

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.