Walmart (WMT, Financial) – the word itself evokes emotion. Many people admire the company, its story, its relentless quest for efficiency. More, arguably (or should I say more audibly), have come to disdain it for very much the same reasons – its relentlessness has forced the culture of the charming, moms-and-pops shopping experience into near-bankruptcy. The investment community, while rarely subject to much of a sentimentalism risk, has weighed in heavily on the negative side in recent months.
The recent charges out of Wall Street include: same-store-sales have disappointed in the 0-2% range; the move to the high-end was a bust; they have failed / are failing in their bid for international expansion; and last, but certainly not least, they are simply too large to grow materially in the US anymore. I acknowledge the legitimacy of these concerns, some more than others. Walmart is large and it will be more difficult to grow domestically in a significant way. Korea and Germany were not successful but other countries, like Mexico, have been smashing successes. Organic produce at the local Walmart never lit my fire, but I still, nonetheless, tip my hat to them for being open-minded enough to experiment with it. As for the whole same-store-sales obsession, I simply refer you to Eddie Lampert’s 2005 Sears Holding annual letter for the sound logic and arithmetic behind why the same-store-sales metric is, more often than not, complete and utter nonsense.
Concerns acknowledged and somewhat legitimated, somewhat refuted, I decided to visit my local Walmart to see and feel the situation firsthand. I do confess to making my trip giddily armed with the fact that Walmart, a once-in-a-century success story, was trading at a languishing 14.4x forward earnings. What did I find?
Cars in the parking lot, lots of them. People in the store, lots of them. I found a store reasonably in order given the unbelievable, absolutely unbelievable, amount of trade volume going through it. I found, to my admitted pleasant surprise, a clean, accessible restroom that would not deter even the neatest of neat-freaks. Most significantly, however, I found shopping carts loaded up with both the season’s generosities as well as the people’s daily requirements. From these findings, I began to ponder the title of this piece: how can all these people be wrong?
My answer to this question is simple: they are not wrong at all. Arnold Van Den Berg, in an interview in the August Outstanding Investor Digest, makes the case for Walmart from the fact-based perspective. Walmart’s grocery prices are 17-29% less than other supermarkets, providing the average household with savings of $2,300 per year! Worried about the rise in gas prices, offset this by shopping at Walmart. Want to pay for little Johnny’s college education 15 years down the road, buy his food at Walmart and contribute to his 529 plan with the “profits.” Don’t have enough savings to fund your own annual retirement contribution, switch to Walmart and you will.
If it is the infamous Walmart labor practices that are preventing you from acting in you and your family’s rational best interests (note that the “all these people” of my visit did not appear to have this hang-up), bear in mind that Walmart’s average full-time hourly employees earn nearly double the federal minimum wage at $10.11, which is more than 2 bucks more than what H&R Block pays, and receive health insurance after only six months’ employment while part-timers at Walmart, contrary to urban legend, do begin receiving health insurance after two years. Walmart did purchase $18 billion worth of merchandise from China in 2004 (apparently this has become something to be ashamed of); ah, but the facts are annoyingly stubborn for Walmart detractors on this issue as Walmart purchased $150 billion worth of goods from 61,000 US suppliers and, in so doing, supported over 3 million US supplier jobs in addition to their 1.3 million direct US workforce. And in case you were wondering about Walmart’s corporate citizenship…the company’s tax payments exceeded $5.5b in 2004, while, in 2005, those greedmongers from Bentonville dipped into shareholders’ pockets and contributed over $200 million to charity.
How can all these people be wrong? The millions of shoppers each saving thousands of dollars per year are not wrong. The millions of employees contributing to their own family’s well-being in a material way are not wrong. Now, it does remain to be seen whether investors, concerned over future growth and comparative advantage deterioration, and willing to discard WMT at the historic low multiple of 14.4x earnings, will be wrong or not. At that price, at this risk-reward point in time, I side with the shopping carts. Walmart LBO, anybody?
The recent charges out of Wall Street include: same-store-sales have disappointed in the 0-2% range; the move to the high-end was a bust; they have failed / are failing in their bid for international expansion; and last, but certainly not least, they are simply too large to grow materially in the US anymore. I acknowledge the legitimacy of these concerns, some more than others. Walmart is large and it will be more difficult to grow domestically in a significant way. Korea and Germany were not successful but other countries, like Mexico, have been smashing successes. Organic produce at the local Walmart never lit my fire, but I still, nonetheless, tip my hat to them for being open-minded enough to experiment with it. As for the whole same-store-sales obsession, I simply refer you to Eddie Lampert’s 2005 Sears Holding annual letter for the sound logic and arithmetic behind why the same-store-sales metric is, more often than not, complete and utter nonsense.
Concerns acknowledged and somewhat legitimated, somewhat refuted, I decided to visit my local Walmart to see and feel the situation firsthand. I do confess to making my trip giddily armed with the fact that Walmart, a once-in-a-century success story, was trading at a languishing 14.4x forward earnings. What did I find?
Cars in the parking lot, lots of them. People in the store, lots of them. I found a store reasonably in order given the unbelievable, absolutely unbelievable, amount of trade volume going through it. I found, to my admitted pleasant surprise, a clean, accessible restroom that would not deter even the neatest of neat-freaks. Most significantly, however, I found shopping carts loaded up with both the season’s generosities as well as the people’s daily requirements. From these findings, I began to ponder the title of this piece: how can all these people be wrong?
My answer to this question is simple: they are not wrong at all. Arnold Van Den Berg, in an interview in the August Outstanding Investor Digest, makes the case for Walmart from the fact-based perspective. Walmart’s grocery prices are 17-29% less than other supermarkets, providing the average household with savings of $2,300 per year! Worried about the rise in gas prices, offset this by shopping at Walmart. Want to pay for little Johnny’s college education 15 years down the road, buy his food at Walmart and contribute to his 529 plan with the “profits.” Don’t have enough savings to fund your own annual retirement contribution, switch to Walmart and you will.
If it is the infamous Walmart labor practices that are preventing you from acting in you and your family’s rational best interests (note that the “all these people” of my visit did not appear to have this hang-up), bear in mind that Walmart’s average full-time hourly employees earn nearly double the federal minimum wage at $10.11, which is more than 2 bucks more than what H&R Block pays, and receive health insurance after only six months’ employment while part-timers at Walmart, contrary to urban legend, do begin receiving health insurance after two years. Walmart did purchase $18 billion worth of merchandise from China in 2004 (apparently this has become something to be ashamed of); ah, but the facts are annoyingly stubborn for Walmart detractors on this issue as Walmart purchased $150 billion worth of goods from 61,000 US suppliers and, in so doing, supported over 3 million US supplier jobs in addition to their 1.3 million direct US workforce. And in case you were wondering about Walmart’s corporate citizenship…the company’s tax payments exceeded $5.5b in 2004, while, in 2005, those greedmongers from Bentonville dipped into shareholders’ pockets and contributed over $200 million to charity.
How can all these people be wrong? The millions of shoppers each saving thousands of dollars per year are not wrong. The millions of employees contributing to their own family’s well-being in a material way are not wrong. Now, it does remain to be seen whether investors, concerned over future growth and comparative advantage deterioration, and willing to discard WMT at the historic low multiple of 14.4x earnings, will be wrong or not. At that price, at this risk-reward point in time, I side with the shopping carts. Walmart LBO, anybody?
