Wal-Mart: U.S. Comparable Store Sales Recovery

| About: Wal-Mart Stores, (WMT)

With a cautious view of economic recovery in the U.S, Wal-Mart's (WMT) plan to reduce costs, give broader selection and best price guarantees will help drive more customer traffic, and thus create more comparable store sales.

In Q4 2012, Wal-Mart's revenue increased 5.8% to $122.29 billion, up from $115.6 billion a year ago. Wal-Mart reported earnings of $8.4 billion, or $1.51 per share, which is up from a year-earlier when Wal-Mart reported earnings of $8.0 billion, or $1.41 per share. Comparable store sales in the U.S were up .2% in fiscal year 2012, which was a complete turn around from the previous two years.

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A year ago, when Wal-Mart reported U.S. comparable store sales at -1.5%, Michael T. Duke, President and Chief Executive Officer of Wal-Mart Stores, Inc. stated: "We were simply not satisfied with the net sales results in Wal-Mart U.S. last year." (PDF under 2011). He also stated: "My top priority this year (fiscal year 2012) is to work with Bill Simon, CEO of Wal-mart U.S., and his team to achieve positive comparable store sales."

To help achieve positive comparable store sales in the U.S., Michael T. Duke implemented a four-point plan. Michael T. Duke stated: "This year, the Wal-mart U.S. team is implementing a four-point plan to improve comparable store sales." The premise for the four point plan is to give shoppers the ability to shop on their terms. Michael T. Duke clarifies by stating:

EDLP (everyday low price) is what our brand was built on, and what drives customer trust and loyalty. Working with our suppliers, we will offer the most relevant, broadest assortment possible across all categories. We are expanding our assortment, reallocating selling space and enhancing productivity initiatives to reduce costs. By expanding our multi-channel initiatives, customers have even more opportunities to shop on their terms.

(Wal-Mart's 2011 annual report, PDF under 2011)

By the end of fiscal year 2012, Wal-Mart's plan had greatly improved its U.S. comp. store sales. In fiscal year 2012, Wal-Mart reported an increase in comparable store sales of .2%. Bill Simon, Walmart U.S. president and CEO stated in the company's 2012 Q4 report.

All three Walmart U.S. geographic units delivered positive comps, reinforcing that our plan is working and resonating with customers. Our stores have greater price leadership, broader assortment, and improved on-shelf availability. The combination of these factors contributed to positive traffic. We invested in price in the fourth quarter and will continue to do so through this fiscal year, so we can pass savings on to customers.

The chart below shows the U.S. comp. store sales per quarter fiscal year 2012.

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In Duncan Mac Naughton's speech at the CIBC Retail and Consumer Conference in March 2012, the Executive Vice President and chief merchandising officer for Wal-Mart expressed some concerns about the U.S. recovery and its impact on Wal-Mart. The concerns that he expressed were:

  1. Unemployment in the U.S. - "23 million Americans are unemployed, unwillingly working part-time, or have given up looking for jobs. "
  2. Rising Gas Prices - "Bad News for Consumers - Expect Higher Gas Prices in 2012"
  3. Economic Growth - "Growth remains tepid and unemployment remains high at 8.3 percent."
  4. Sluggish Recovery - "Risks are rising that a moribund job market and steep drop in inflation could push the US into a downward spiral…"

- (PDF Under presentation)

Even with concerns about the U.S. recovery, Wal-Mart is still expecting a modest recovery in the comparable store sales. Bill Simon expressed in Wal-Mart's Q4 2012 report,

Heading into this fiscal year, we will build on our fourth quarter results and drive continued improvement for our customers and shareholders. We are forecasting Walmart U.S. comparable store sales for the 13-week period from Jan. 28 through Apr. 27 to range from flat to positive two percent.

With a cautious view of the economic recovery, Wal-Mart can see a modest rise in U.S. comparable store sales in Q1. Wal-Mart is expecting comparable store sales to rise by around 1%. Wal-Mart is also expecting a strong fiscal year 2013, in which they predict earnings per share between $4.72 and $4.92.

Estimated sales = $460.41 billion

Estimated profit margin = 3.5%

Estimated profit = $16.11 billion

Shares outstanding = 3.3 billion

EPS = $4.88

Forward P/E = 12.1

WMT - Wal-Mart Stores Inc - Stock Price Target for 2012 = $59.04 USD

Action Analyst Rating Price Date
Downgrade Raymond James Market Perform « Strong Buy 02/23/12
Downgrade S&P Research Buy « Strong Buy 02/22/12
Maintain S&P Research $67.00 02/22/12
Target Jefferies & Co $57.00 « $54.00 02/17/12
Target Robert W. Baird Outperform $70.00 « $64.00 02/15/12
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(Chart Source)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.