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The share price of big-box, U.S.-based retail giant, Wal-Mart (NYSE:WMT) is down by more that 2.2% in pre-market trading just nine minutes before the opening bell is to be rung at the New York Stock Exchange. Wal-Mart released a disappointing Q1 FY16 earnings report earlier this morning that included a 7% drop in profit.
As part of his obligatory explanation, CEO Doug McMillon cited the strong U.S. dollar for its impact on international sales. Although U.S. sales were up in the U.S., nonetheless, McMillon, who was only recently appointed CEO, acknowledged that “We’re not where we want to be in every store.” Although same-store sales in the U.S. improved by 1.1%, that figure was short of analyst estimates that averaged 1.5%
Infographic Earnings Report
If Wal-Mart is setting any trends anywhere, it seems to be the manner in which they are presenting their financials to investors and the public at large. They are in infographic style, but labeled as a “presentation supporting transcript,” which is available at the immediately preceding link. But, we digress.
What’s Wrong With Wal-Mart?
In my humble opinion (I could be wrong, but that would be highly unusual), Wal-Mart is suffering from “The McDonald’s Syndrome.” People are tired of shopping there. The low-price retailer is unable to offer superior customer service and expert advice by hiring minimum wage employees. I personally quit shopping there more than a year ago, after my wife was told on two occasions that products specifically performed functions that they did not – one office product and one automotive product.
That’s not the only reason I stopped shopping there. That was the last straw. For several years I ran a business that was a supplier to Wal-Mart, something I wouldn’t wish on anyone.
I understand that this column should focus on financials, but the real problem at Wal-Mart is that they do not listen to the consumers who they are losing. I know more people who, when they list things they absolutely will not do, begin with, “I will never shop at Wal-Mart.” Sometimes that expression is extended by one additional word: “again.” Only when Wal-Mart decides to listen, will their struggles cease. Don’t get me wrong. They are not going away any time soon, if ever. I do think, however, their glory days are drifting into the past.
Back to Business
- Total revenue dropped by 0.1% to $114.8 billion year on year. When adjusted to constant currency rates those revenue was up 2.7%
- Operating income fell by 8.3% to $5.7 billion
- ROI declined by 10 basis points to 16.6%
- Operating cash flow declined by more than 33%
- U.S. sales were up 3.5% to $70.2 billion, with a higher volume of traffic helping to offset lower average tickets.
- U.S. operating income fell by 6.8% to $4.6 billion
- International sales declined 6.6% to $30.3 billion
- The largest across-the-board decreases in sales, traffic and average ticket was in the UK.
- Chinese operations suffered the greatest decline in traffic at 8.9%
Now that the market has opened, traders are reacting in kind to pre-market transactions with WMT’s share price now having dropped by 3.67% to $76.99 on a volume of slightly more than 6 million shares. That may not bode well, as the average daily trading volume over the past three months is only 6.8 million.
Things will settle down in a day or two and Wal-Mart will return to business as usual.
