Time to Be Downbeat About Wal-Mart?

October 11th, 2007

When I bought Wal-Mart (WMT) a bit more than a year ago, I wrote an article for Financial Times where I laid out my theses:

Wal-Mart currently appeals mostly to lower income demographics, and this is where things will change the most… Cleaner, better, more appropriately merchandised stores will attract new customers… encourage shoppers to… spend more… As initiatives take effect and the shopping experience improves, Wal-Mart will be taking market share from upper scale retailers…

I was wrong! Wal-Mart failed to improve its stores and merchandising to attract a more affluent shopper (the sub-par same store sales are a testament to that). Thus future fundamental return (earnings growth and dividends) will likely be in the high single digits, below original estimates, making the stock fairly valued (at best) at today’s valuation. My (accounting) loss on the purchase was miniscule – because I did not overpay for the stock; however, I experienced an opportunity cost loss as the market has appreciated since.

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Entry Filed under: Analysis & Research

1 Comment Add your own

  • 1. Jason Coleman  |  October 15th, 2007 at 1:13 am

    I just did some shopping at Target and Walmart this past weekend, and it’s remarkable how different the two stores are (and the customers who shop at each). Target has really done a great job at acting as a discount store that doesn’t feel like one.

    I too figured that Walmart would wake up sooner and get there too, but it looks like they were distracted. And every year they are the same Walmart is another year with a bad image that’s hard to shake. Think of K-mart… it’s like a dirty word.

    That’s just my take as a customer. I’m not following these stocks, so I can’t speak to the investment side.

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