Walmart Reports $100 Billion in 4Q Sales

Tuesday morning before the open, retailing behemoth Wal-Mart (WMT) reported the first $100 billion in sales in a quarter ever by a retailer.

To put that number in context, the personal consumption part of Gross Domestic Product (GDP) in 2007 was $9.7 trillion (total GDP was $13.8 trillion (BEA 4Q GDP Release) (pdf file)). At an annualized rate of $400 billion, then, Wal-Mart represents about 4% of all consumer expenditures in the United States.

Wal-Mart reported earnings of $1.04 per share, excluding items - beating analyst expectations by 2 cents. Its forecast was a little weak (WMT FY 4Q Earnings Release) but, of all retailers, Wal-Mart, with its relentless focus on costs and prices, should hold up best in a difficult, possibly recessionary, environment.

At a forward multiple around 14, a 1.75% dividend and its stock acting well of late, Wal-Mart is somewhat attractive here (around $50).

The only problem is that being such a massive company, it takes a lot to move the dial. Even if Wal-Mart performs superbly, it probably can’t grow earnings more than 8-10% a year which corresponds to an 8-10% annual gain in share price as long as the mulitple stays the same.

One way to juice your returns a bit is to buy Wal-Mart shares, and sell covered calls on them. For example, you could buy the shares at $50, and sell the Jan.2009 $50 calls for $5 each. That gives you a 10% return on your investment right off the bat.

If Wal-Mart’s shares appreciate 10% to $55 or higher, then you turn over your shares and the premium is eaten up. But, if Wal-Mart shares go nowhere, the calls expire worthless. You would make 10%, plus collecting the 2% dividend, for a 12% total return - even if the shares go nowhere.

Even if the shares go to $60, because you own them, you don’t lose money. The only way you lose money on this trade is if Wal-Mart’s shares lose more than 12% of their value - which would take them down around $44. In that case, the premium you got from selling the calls would be eaten up by the share price decline. That’s your breakeven for this trade.

As long as they stay above that, you make money. And the less they move the better.

Disclosure: Top Gun is long Wal-Mart (WMT) and short Wal-Mart calls.