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By Brian Sozzi

For a retail giant (or legend, pick your term) that is basically everywhere in the U.S. and making strong inroads into the international scene, Wal-Mart's (WMT) stock price has been anything but fresh and easy for an investor's portfolio. Since peaking at a 52-week high on January 28, Wal-Mart has shed 7.4% compared with the S&P 500 (SPY), notching a gain of 2.8%. Zeroing in on the here and now, the S&P 500 is up approximately 3.5% from the short-term June 23 closing bottom; Wal-Mart is up an underperforming 2.8%. Keep in mind this is despite a massive $15 billion share repurchase program looming over the earnings line like a thundershower on a 105 degree day.

So what's the 411? We have a situation in which Wal-Mart's shares, beloved by many on the Street (I am a lone sheep at a sell rating), are trading on a 12.5x forward P/E multiple and sporting a 2.7% dividend yield and they still are unable to catch a bid. This has happened in view of a weakening employment picture that theoretically should favor Wal-Mart's business model (price perception...it has become an issue). Oddly enough, Wal-Mart shares may have foreshadowed the short-term peak in monthly job creation; the stock began to languish from January 28, just as we were about to enter a couple of months of 100,000 plus in non-farm payroll growth. Seven months later, we are two disappointing payroll reports in the hole.

Why being Long is Wrong on Wal-Mart

  • Dollar stores Dollar General (DG) and Family Dollar (FDO) print strong same-store sales recently (suggests Wal-Mart still not receiving fill in visits between paycheck periods). Price perception in spite of the new price match campaign looking like an issue. Did you ever think a day would come where Wal-Mart would be viewed as expensive? The time may be upon us, and it's very much a function of the type of jobs recovery we are experiencing.
  • Target (TGT) continuing to struggle selling anything that could be deemed discretionary.
  • Family Dollar reiterated Wal-Mart's declaration of a pronounced paycheck cycle, where low-income consumers err on the side of caution.
  • Gross margin misses at Dollar General and Family Dollar due to inflation and weak seasonal sales.
  • Walmex June same-store sales fall shy of consensus.
  • Wal-Mart focusing on price match in the U.S. and global everyday low price initiatives (margin unfavorable).
  • Challenging market conditions for Wal-Mart's Asda UK business.
  • Import inflation has changed the buy for less, sell for less dynamics of Wal-Mart's business.
Source: What's Ailing Wal-Mart Stock?