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Wal-Mart's 'Comps' Creep Lower
BusinessWeek Online
Editorial
Tuesday October 31
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The Eagles never recorded a tune
called "Life In the Slow Lane", but if they did, the country-rock combo
could dedicate the ditty to its new marketing partner, Wal-Mart Stores (WMT).
The Bentonville [Ark.]-based retail giant unleashed the latest in a
string of disappointing sales updates on Oct. 28, announcing that
estimated comparable-store sales for its October four-week period --
Saturday, Sept. 30, through Friday, Oct. 27 -- rose an anemic 0.5%,
marking the smallest such increase in nearly six years.
Investors made their displeasure known
Monday, Oct. 28, rolling back the stock price 2.4% to $49.53 in
late-afternoon New York Stock Exchange trading. The shares touched a
52-week high of $52.15 earlier in October.
In a repeat of the company's sales
guidance during September, when it steadily downgraded its expectations
for "comps" [see BusinessWeek.com, 10/4/06, "Wal-Mart: The Incredible
Shrinking 'Comp'"] the company has been backpedaling during October as
well. While earlier guidance was for growth of 2%-4%, at an Oct. 23-24
analyst meeting, company management said October comps would be in the
1% range. At the meeting, Bentonville brass expressed confidence about
prospects for the holiday season and beyond. Comp-store sales have
trended steadily lower, from 2.5% in August to 1.3% in September to
October's limp reading.
And while Wal-Mart has tried to
engender positive buzz on the Street in recent weeks by announcing
expansion plans in China [see BusinessWeek.com, 10/17/06, "Wal-Mart
Shops for China's Trust"], dialing back the pace of capital spending
[see BusinessWeek.com, 10/23/06, "Less Is More for Wal-Mart"] and even
trumpeting a marketing partnership with The Eagles on Oct. 30, the sales
numbers remain the elephant in the room.
What's holding back sales growth?
Analysts cite the retailer's big store remodeling program. Efforts to
entice customers with more upscale merchandise -- especially Wal-Mart's
new Metro 7 apparel line -- have failed to catch on. And its core
customers may only be starting to recover from the energy-price spike
earlier this year.
Wall Street analysts reacted to the
October projection in divergent ways. Prudential Equity cut its third
quarter comp-sales growth forecast from 3.0% to 1.4% -- below the
guidance range provided by Wal-Mart management of 2% to 4%. It also
lowered its third-quarter EPS estimate to 60 cents from 61 cents.
In an Oct. 30 research note, Pru
analysts Mark Rowen, Aimee Landwehr, and Anne Wickland wrote that they
believe "disruptions from remodeling and problems in ladies apparel are
continuing to drag down comps". The analysts expressed surprise that
lower gas prices have not helped drive store traffic and sales. And they
are "concerned" bout Wal-Mart's comp store sales performance over the
holiday season.
Meanwhile, Citigroup analysts Deborah
Weinswig and Charmaine Tang said in an Oct. 30 research note that
Wal-Mart's current October forecast was below the firm's recently
revised estimate of 1%-3% and original company guidance of 2%-4%.
The Citi analysts believe that traffic
during the month may have been negatively impacted by the store
remodelings, though they note that most of the remodels will be
completed by the first week of November. They think traffic trends could
be aided by the company's $4 generic prescription drug program, now in
27 states. In what may be a sign of an intensely competitive holiday
season to come, the analysts noted that in late October, Wal-Mart
"rolled back" prices on over 100 toys and games.
The Citi analysts are a far sight more
bullish on the company's stock, with a $60 target price and a buy
rating, citing a "favorable fundamental outlook". They note that
customer traffic continues to be strong, driven by strength in
consumables and "compelling" prices and improvements made in apparel,
consumer electronics, private label, and branded merchandise. But they
anticipate slowing earnings growth for 2007 [12.6%] and 2008 [12.5%] --
below the retailer's 10-year average EPS growth rate range of 13%-19%.
Wal-Mart's official sales release for
the October period will be on Nov. 2.
Copyright © 2006 BusinessWeek Online.
All rights reserved.
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Wal-Mart Ammo Theft
Sparks New Questions
City News
Tuesday October 31, 2006
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Police are worried that a cache of
ammunition could fall into the wrong hands after 250 rounds of bullets
for shotguns and rifles went missing from a Wal-Mart in Brampton. Cops
say the missing ammo wasn't even being sold at the particular location
but was being stored there.
Wal-Mart management wouldn't speak to
CityNews, but according to other retailers every individual must have a
licence to sell ammunition.
One former Wal-Mart employee says it
wasn't the case in his store.
"It wasn't being sold by anyone that
was qualified," claims Eric DeSilva. "It was primarily sold by
students."
Police say they don't have any solid
evidence that the bullets were stolen and admit it may be an inventory
mix-up. But the prospect of missing bullets concerned shoppers, with
some questioning the store's policies.
"It's a family store. I don't think
they should be selling that," remarked one.
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Reaction To Expansion Of Wal-Mart Generic Prescription Drug Discount
Program Mixed
medical
news today
31 Oct 2006
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The expansion of a Wal-Mart Stores
generic prescription drug discount program to 12 additional states on
Thursday "will likely provide price relief for the uninsured, a quick
surge in sales and matching deals from other large retailers" in those
areas, the Baltimore Sun reports (Salganik, Baltimore Sun, 10/27).
Wal-Mart last month announced that the program -- under which some
company pharmacies would sell 30-day prescriptions of certain generic
medications for $4 -- would initially include 65 Wal-Mart, Sam's Club
and Neighborhood Market pharmacies in the Tampa, Fla., area and would
expand statewide in early 2007 and possibly to other states in the
future. This month, Wal-Mart has expanded the program statewide in
Florida and to 26 additional states (Kaiser Daily Health Policy Report,
10/26). According to Wal-Mart, the program, which includes 143 different
generic medications in a total of 314 dosages, represents almost
one-fourth of all prescriptions sold in pharmacies nationwide. However,
a list of the 20 most commonly prescribed medications prepared by IMS
Health includes only two of the generic treatments offered through the
program (Feldstein, St. Louis Post-Dispatch, 10/27). CMS spokesperson
Julie Bookhart said that the program is "good news for seniors" and
"shows that competition is a good thing" (Karash, Kansas City Star,
10/27). Officials for the American Pharmacists Association said that the
group supports more affordable medications but cautioned patients to
consult their physicians before they switch to generic treatments
included in the program. Kristina Lunner, acting vice president of
policy and communications for APA, said that the program "starts to send
a message that drugs are just another commodity," adding that they are
"very different" (Mui/Wiggins, Washington Post, 10/27). Charlie Sewell,
senior vice president of government affairs for the National Community
Pharmacists Association, said that Wal-Mart is "misleading patients into
thinking they're going to get cheap drugs" (St. Louis Post-Dispatch,
10/27).
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Benefiting from
Wal-Mart's struggles
Marc H. Gerstein
31 Oct 2006
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Strip-mall REITs, held back by fear of
Wal-Mart, may get a second look now that the giant is struggling.
Wal-Mart Stores Inc. <WMT.N> phobia
has been an enduring aspect of everyday retailing and among investors
who fear the competitive shadow of the Bentonville titan. Case in point:
Shares of CVS Corp. <CVS.N> and Walgreen Co. <WAG.N>, whose customers
are mostly insured and likely would be little inclined to switch
allegiance, fell after the retailing titan announced generic-drug price
cuts. But internal issues such as badly-needed remodeling and so-far
unsuccessful efforts to sell trendy clothing are causing Wal-Mart to
struggle even while other merchants prosper, Reuters reported yesterday.
As the giant's competitive stature diminishes, shares of other retailers
that have been stuck in Wal-Mart's shadow may be ripe for a fresh look.
Good-yielding retail-property real estate investment trusts (REITs) are
a good place to start.
Shares of retail companies are one
obvious way to participate in consumer spending trends. Another often
under-appreciated approach is to invest in companies that lease space to
the well-known retail chains. They usually operate as REITs and pay
virtually all their income to shareholders as dividends. They have some
upside participation in retail spending since commercial rents usually
include a percent of store sales, but REITs don't experience the
month-to-month volatility we often see in shares of individual retailers
that report favorable or unfavorable short-term comparable-store sales
growth trends.
Among retail-oriented REITs, much of
Wall Street's attention falls on the mall operators, big names like
Simon Property Group, Inc. <SPG.N> that often operate upscale malls
featuring the best-known specialty chains and quality department stores.
These properties tend to emphasize full-price retailers and cater to
customers who cherish the shopping "experience." Wal-Mart competition is
not something that keeps them awake at night.
But there's another category, strip
malls, that is competitive with Wal-Mart. These are small neighborhood
shopping centers containing convenience-oriented stores and often
anchored by drugstores or supermarkets. They feature everyday items,
many of which can also be purchased, often at lower prices, at Wal-Mart.
The case for local merchants is based on convenience.
For many consumers, that argument
carries the day. But Wal-Mart's success with its own everyday
consumables, such as groceries, shows there are plenty who are willing
to bear the hassle of getting to Wal-Mart in order to save some money,
or at least enough so to induce Morningstar analyst Jeremy Glasser to be
cautious on strip mall REIT Weingarten Realty Investors <WRI.N> noting,
as a concern, that "almost 70% of the company's centers are in the same
market as a Wal-Mart WMT Supercenter."
Being so heavily exposed to Wal-Mart
hasn't exactly crippled Weingarten. Funds from operations (FFO) - net
income plus depreciation and amortization minus gains or losses from
property sales and after adjustments for unconsolidated partnerships and
joint ventures, this being the pool of funds from which REITs pay
dividends - grew at a healthy 8.5 percent annual rate over the past five
years, and historically, the company has paid as dividends only 76
percent of FFO. Yet fear of Wal-Mart may have been holding back
Weingarten shares. It yields about 4 percent. Compare that with a
non-retail outfit like Boston Properties, Inc. <BXP.N>, an office REIT
with a slightly lower FFO growth rate (5.9 percent) and a comparable
Dividend-to-FFO payout ratio (74 percent), but a significantly lower 2.6
percent yield.
Wal-Mart, with its ability and
demonstrated willingness to cut prices, can never be taken lightly. But
with the company now looking somewhat less invincible, investors may
become less skittish on Weingarten and other strip-mall REITs.
Table A lists strip-mall REITs with
historical FFO coverage ratios below 80 percent. We also exclude REITs
that lack analyst estimates for future FFO coverage, and for future
dividend and FFO growth rates.
Table A
Dividend (%) FFO (%) Yield Est. Growth
Est. Coverage Est. Growth Cedar Shopping Centers <CDR.N> 5.44 2.17 70.06
18.33 Equity One <EQY.N> 4.74 2.70 75.32 3.59 Weingarten Realty
Investors <WRI.N> 4.00 3.30 66.82 4.08 Developers Diversified Realty <DDR.N>
3.91 4.85 69.14 9.42 Tanger Factory Outlet Centers <SKT.N> 3.69 3.32
59.07 12.22 Pan Pacific Retail Properties <PNP.N> 3.66 4.24 67.32 5.30
Regency Centers <REG.N> 3.33 3.52 62.78 7.37 Kimco Realty <KIM.N> 3.26
4.00 64.97 9.43 Acadia Realty Trust <AKR.N> 2.90 4.73 66.91 5.09 Notes:
Estimated dividend growth rate is for the next three years. Estimated
FFO coverage is the average estimate of dividends as a percent of FFO
for the current years and the next three years. Estimated FFO growth
rate is for the next three years.
At the time of publication, Marc H.
Gerstein did not own shares of any of the aforementioned companies. He
may be an owner, albeit indirectly, as an investor in a mutual fund or
an Exchange Traded Fund.
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Reliance to
open first stores of 'Indian Wal-Mart'
Afp, Hyderabad
The Daily Star
Tue. October 31, 2006
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Major company Reliance Industries said
Sunday it would open a series of stores here this week with the aim of
building an Indian version of Wal-Mart, the world's largest retail
chain. The 11 "neighbourhood" stores, to be called Reliance Fresh, will
sell groceries and other goods from Friday as a pilot project to
"understand customer needs," Reliance said.
"We are starting a pilot journey of
listening to customers and learning from them," said Mukesh Ambani,
chairman of Reliance Industries whose main business is petroleum
refining.
Ambani has said he wants to make the
company's new stores arm, Reliance Retail, a "Wal-Mart in India" and has
set an annual sales target of 25 billion dollars by 2011.
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Wal-Mart: A 'Reputation
Crisis'
The giant retailer
has been trying hard to improve its image and reignite sales
By Pallavi Gogoi
OCTOBER 31, 2006 [back to top]
The political advertisements include a
number of actors talking sarcastically about Harold Ford Jr., the
Democratic candidate from Tennessee. The one who has stirred up all the
controversy, though, is a bare-shouldered blonde who says she met Ford
at a Playboy party and closes the clip by winking and whispering,
"Harold, call me."
The ad is taking aim at an African
American bidding to become the first black senator from Tennessee since
Reconstruction, and it has set off a firestorm of debate, particularly
among those who says it's a racist attempt to stoke fears of black men
pursuing white women. Those who have taken heat for the ads include
Ford's opponent, Bob Corker; the Republican National Committee, which
paid for the ads; and Terry Nelson, the Republican strategist who
created the ads.
One of the most surprising targets of
criticism, however, has been Wal-Mart (WMT). The retailer didn't have
any hand in the ads attacking Ford. However, Wal-Mart did have Nelson on
its payroll as a consultant, as part of the company's growing effort to
burnish its own image. Shortly after the Ford ads aired, Reverend Jesse
Jackson came out attacking Wal-Mart and demanded that the company sever
its relations with Nelson. Two days later, Nelson bowed to the pressure
and submitted a letter ending his relationship to the company.
"A Real Threat" It's been that kind of
year for Wal-Mart. The Bentonville (Ark.)-based company has been pushing
hard to improve its public image, at a time when its financial fortunes
increasingly depend on it. It's come under heavy fire from workers and
politicians, for everything from the low wages it pays workers to the
small retailers it pushes out of business. That dark reputation has
resulted in communities around the country taking on Wal-Mart, by trying
to halt construction of new stores or forcing it to pay higher wages and
benefits.
At the same time, the company is
scraping for every dollar of sales it can get. On Oct. 30, Wal-Mart
reported that estimated same-store sales for October rose a slim 0.5%,
the smallest such increase in nearly six years (see BusinessWeek.com,
10/30/06, "Wal-Mart's 'Comps' Creep Lower"). Slow sales have resulted in
Wal-Mart's stock going sideways for five years, a harsh situation for
investors long accustomed to outsized returns.
Wal-Mart has a "reputation crisis,"
says Gerald Baron, founder and president of AudienceCentral, a public
information emergency response group and author of Now Is Too Late 2:
Survival in an Era of Instant News. "Wal-Mart understands that the
situation they are in is a real threat to their future."
Image Incongruity But Wal-Mart's
efforts to improve its public image have been floundering. Besides the
company ending its relationship with Nelson, it's had to backtrack on
several fronts. In August, Andrew Young, the first African American U.S.
ambassador to the U.N., resigned his position as head of the
company-backed group Working Families for Wal-Mart, after making
anti-Semitic and anti-Korean comments. Then, in October, a folksy blog
called "Wal-Marting Across America" drew fire. The blog focused on happy
Wal-Mart workers, but the couple writing it hadn't disclosed that the
expenses and the writing were paid for with Wal-Mart money. That same
month, independent filmmaker Ron Galloway, who had made movies in
support of the company, reversed course and resigned from the board of
Working Families for Wal-Mart.
The contrast between how critics see
Wal-Mart and how the company sees itself couldn't be more stark. While
opponents say the retailer hurts workers by paying them low wages and
benefits, Wal-Mart execs see themselves as champions of the middle
class, making products affordable by pushing suppliers to offer goods at
lower prices. In a presentation to Wall Street analysts on Oct. 24,
Leslie Dach, the company's newly appointed executive vice-president of
corporate affairs and government relations, said that the media, local
governments, and lawmakers in the capital "see us in a better way than
they did a year ago." He added: "Our favorables are at 70%—numbers that
any politician would covet in an election cycle."
Countless Consultants Still, the
world's largest retailer recognizes that it has something of an image
problem. In the last year, it has hired some of the best-known political
and public relations consultants to improve its public face. It also
just cut the ties to its ad agency of 32 years, in an effort to remake
its image into a hip retailer that is also kind and considerate to
employees.
Wal-Mart won't disclose how much it is
spending on these efforts, although they certainly don't come cheap. For
instance, the company hired Dach in August by offering $3 million in
stock, as well as options on 168,805 shares that vest over the next five
years. The company hasn't disclosed the salary or bonus for Dach, who
was vice-chairman at PR firm Edelman and a former media advisor to
President Bill Clinton. Wal-Mart referred questions about Dach to its
public filings and declined to elaborate.
Among the other people that Wal-Mart
has hired as either consultants or employees are Michael Deaver, former
adviser to President Ronald Reagan; Democratic strategist Charles Baker;
Jonathan Adashek, a strategist for John Kerry; Taylor Gross, who has
handled President George W. Bush's communications; and the controversial
Nelson, who was the political director for President Bush's campaign in
2004. Wal-Mart didn't return several calls seeking comment about its
relationship with Nelson.
Good PR Is Hard to Find Many of
Wal-Mart's political consultants came on board after Wal-Mart hired PR
giant Edelman last year. Edelman has been a controversial force in
Wal-Mart's image-boosting efforts. Last December, the firm formed the
advocacy group Working Families for Wal-Mart, paid for solely by
Wal-Mart, to counter criticism from the union-funded groups Wal-Mart
Watch and WakeUpWalMart.com. The Working Families group has been at the
center of several notable maelstroms swirling around Wal-Mart.
An early disappointment was the
high-profile appointment of Young, as head of Working Families for
Wal-Mart. He resigned barely six months into the job, after saying in an
interview that Jewish, Korean, and Arab store owners had been ripping
off urban communities for years.
The Working Families group also hired
the couple who published the "Wal-Marting Across America" blog. They
were known only as Jim and Laura, and they drove cross-country in an RV
to capture the stories of people they met in Wal-Mart parking lots.
BusinessWeek.com first revealed that the Working Families group was
paying for the RV, the gas, and the blog writings (see BusinessWeek.com,
10/8/06, "Wal-Mart's Jim and Laura: The Real Story").
The effort became notorious in the
blogging community, where writers took Wal-Mart to task for tarnishing
the reputation of blogs (see BusinessWeek.com, 10/17/06, "Wal-Mart vs.
the Blogosphere"). When the Wal-Marting blog was exposed, a Wal-Mart
spokesman said, "It was a Working Families for Wal-Mart initiative, and
we didn't have anything to do with it." Edelman's CEO issued a mea culpa
and took full responsibility for the mess.
Losing Support How much of Wal-Mart's
problem is style and how much substance? The answer is unclear at this
point. However, at least some consumers are no longer shopping at the
company's stores because of its reputation. According to a study by the
consulting firm McKinsey & Co. for Wal-Mart, 2% to 8% of the company's
customers have stopped shopping there, "because of negative press they
have heard." Reputation is even more important as the company pushes
upscale, trying to sell everything from organic food to high-end
apparel, through its Metro 7 line. So far these initiatives have failed
to ignite sales as much as the retailer hoped.
Expansion plans have been scaled back.
In late October, Tom Schoewe, Wal-Mart's chief financial officer, told
analysts that the company will see its capital spending grow 2% to 4% in
fiscal 2008. That is down from the 15% and 20% growth this year.
Even some former supporters wonder
whether Wal-Mart has to change its ways. Filmmaker Galloway appeared on
several TV shows praising the retailer after making the movie: "Why
Wal-Mart Works: And Why That Makes Some People Crazy." But he had a
change of heart this year, after meeting with a Wal-Mart employee who
had been featured in his film and is now upset because of the company's
recently announced wage caps (see BusinessWeek.com, 8/11/06, "The Flip
Side of Wal-Mart's Pay Hikes"). "This lady was distraught because she
would never get a raise at Wal-Mart," he says. "I think that profiting
on the backs of long-term employees isn't right."
Copyright 2000- 2006 by The
McGraw-Hill Companies Inc. All rights reserved.
[back to top]
Wal-Mart
eyes banking Financial services in Canada
It's a way to
strengthen ties with its customers: analyst
Hollie Shaw and Carrie Tait
National Post
Tuesday, October 31, 2006
[back to top]
Wal-Mart Canada Corp. is looking to
expand into the financial services business, a potentially lucrative
growth area as the retailing price war intensifies over food, clothing
and other consumer staples.
The big-box giant recently hired Trudy
Fahie as vice-president of financial services at Wal-Mart Canada, a role
created for assessing the retailer's options in the sector. Ms. Fahie is
the former vice-president of financial services for American Express
Canada.
"We will be looking at a range of
possible financial services to enhance our offering to our customers,"
Andrew Pelletier, a spokesman for Wal-Mart Canada, confirmed yesterday,
calling the next six months to a year an "exploratory" period. "It's too
early to speculate on what those services will be at this point."
The country's biggest general
merchant, which strikes fear into the establishment of every new
industry it considers entering, has not applied to become a bank like
Canadian Tire Corp. has done, Mr. Pelletier said.
"It's not something that we're looking
at right now," he said, while not ruling it out for the future. "There
is increasing interest among our customers for broader financial
services, and we plan to stay up to date with that customer interest."
Industry experts say Wal-Mart Canada
could still offer a range of products through a third party: banking
products such as mortgages and high-interest savings accounts or home
and auto insurance. They said it is likely Wal-Mart would first offer
simpler products such as money orders, wiring or third-party extended
warranties before delving into retail banking services.
Rival Loblaw Cos. has an official
Canadian banking licence, but uses its bank solely for running a
profitable credit card business. The grocery giant's PC Financial
division offers banking products including no-fee accounts, lines of
credit and mortgages in partnership with the Canadian Imperial Bank of
Commerce.
The news comes as Wal-Mart prepares to
take the plunge into Canada's ultra-competitive grocery retailing
business. Loblaw Cos. Ltd., the country's biggest grocery chain, has
spent the past two years expanding its grocery superstore format in
anticipation of Wal-Mart's arrival in the sector.
Adding financial services is a way for
Wal-Mart to strengthen its ties with customers and does not necessarily
involve taking on much risk, industry experts say.
"Accessing banking through third
parties is not unusual for retailers and it's an effective and efficient
way of getting into the business, which gives them access very quickly
to a wide range of products," said Keith Sjogren.
Mr. Sjogren is director of strategy
consulting at financial services consultancy Investor Economics.
Starting up a proprietary bank can
take years and significant capital investment, he noted.
"If you share the risk with a third
party the return may be less, but because the investment is lower, it
may be more attractive to you. In the case of Loblaw, it's attractive
for CIBC to gain access to the Loblaw customer base and for Loblaw, it's
attractive [to offer such services] as a way to deepen its relationships
with customers."
Wal-Mart Canada, which will compete
with Loblaw Cos. and Sobeys Inc. when its new Ontario grocery stores
open next month, currently offers house credit cards at its stores and
at its Sam's Club warehouse outlets in a third-party agreement with GE
Capital, and also has non-bank ATM cash dispensers in its stores.
The retailer's American division has
unsuccessfully tried to make inroads into banking in the U.S. In the
summer of 2005, Wal-Mart Stores Inc., the Arkansas-based owner of
Wal-Mart Canada, applied for a Utah industrial bank charter, which is
still pending. Earlier applications by the retailer for bank charters in
Oklahoma and California were turned down.
Numerous Canadian retailers have
leveraged their customer bases by offering house credit cards or some
banking services.
Canadian Tire, which acquired a
banking licence in 2003, announced earlier this month that it would
start offering high-interest savings accounts in the test markets of
Calgary and Kitchener, Ont. The retailer is expected to later roll out
products including mortgages and GICs.
Sears Canada Inc. obtained a banking
licence in 2003, but did not extend it beyond credit cards before its
financial services division was sold last year to JP Morgan Chase & Co.,
which is expected to use Sears as launching pad to offer consumer
banking services in Canada. And grocery chain Sobeys Inc. has been
putting small Bank of Montreal branches inside some stores from Ontario
to the East Coast of Canada. </ | 
