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Will Wal-Mart Be Able to Stage a Comeback?

May 28, 2014 | About:
Suravi Thacker

Suravi Thacker

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Wal-Mart (WMT), one of the leading retailers, posted its first quarter results recently. The quarterly numbers failed to please the investors, pulling its share price down. This was somewhat surprising because consumer spending in the U.S. has been on the rise, as indicated by an uptick of 0.9% in the month of March. Also, claims for jobless benefits have been reduced.

Analyzing the Results

Although revenue inched up slightly to $115 billion, it did not meet the estimates. According to the company, revenue was hampered mainly because of colder-than-usual weather which forced customers to stay at home. Also, reduction of food stamp benefits, a few months ago, was another reason why fewer people shopped at Wal-Mart.

Despite an increase of 1.3% in the average purchase size of customers, same-store sales fell by 0.2% in the U.S. This was mainly due to lower footfall at its stores. As the weather was unusually cold, shoppers preferred to sit back at home and order the required things online. This helped in driving the company’s online sales higher by a whopping 27%.

However, Wal-Mart faces stiff competition from online players such as Amazon.com (AMZN) which has a much wider presence and has a first mover’s advantage. Therefore, Wal-Mart needs to expand and improve its e-commerce capabilities in order to compete well with Amazon.

On the International Front

The international operations too were hampered due to unfavorable currency fluctuations. Nonetheless, the company registered a 3.4% growth in the international business, on a constant currency basis. The retailer witnessed growing demand in the international market and plans to expand its wings in the region. However, adjusted earnings stood at $1.10 per share, quite below the estimate of $1.15 per share.

Some Efforts to Be Considered

Wal-Mart has undertaken certain measures which should help the retailer win back lost customers. First, its entry in the organic food segment is commendable. This is mainly because organic food has become largely popular since people have become increasingly health conscious. Also, it plans to cater to a variety of people by adding premium products and including services such as video game trade-in program. This will help in attracting the young population as well as affluent customers.

The most important effort on Wal-Mart’s part is its strategy of opening smaller format stores which has proved to be very successful. Sales at such stores surged 5% during the quarter. Therefore, the company plans to further expand its small stores in the urban areas. Since these stores are smaller in size, they weigh less on the cost structure. Moreover, because of its location in the urban areas and in the neighborhood market, it makes it easier for the customers to walk up to any of the Wal-Mart stores for any of the smallest need.

To End With

Hence, Wal-Mart seems to be racing ahead with its newly introduced strategies. Its new format stores are stealing the show and making an impact on the customers. Also, offering natural and organic food at its Express stores is a smart move since it will attract health conscious people. Moreover, growing e-commerce business should help revenue grow. Therefore, Wal-Mart should be able to pace up in the long run. Until then, watching this stock and waiting for the right time is a good idea.


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