Wal-Mart Falls in the Red
The discount powerhouse had quite a bad week last week when stocks drastically dropped Thursday, as “a second-quarter profit warning from Wal-Mart Stores Inc. overshadowed strong economic news and a sharp drop in oil prices. The Dow Jones industrial average suffered a triple-digit loss for the second time this week. The Dow fell 110.77, or 1.08 percent, to 10,189.48. The index lost 103.23 points on Tuesday and is down 1.51 percent for the week so far,” stated an article from the Associated Press (AP).
Spring is always a challenge because no one really knows what is going to happen. With the last few years being full of rain and cold, people have not been out to get their garden supplies yet. With the unseasonably cool weather and higher gasoline prices growers may be in for an unpleasant spring if Wal-Mart isn’t able to move the plants due to the weather. Though the as unseasonably cool weather is not the only reason for Wal-Mart’s drop in the second quarter; it is one that is stated by economists and analysts as a major problem.
Though economists have been talking about an economic turn around coming soon, the Wal-Mart news last week, sent that speculation spiraling down a little more. According to the AP article, “Wal-Mart missed Wall Street’s profit expectations for the quarter and more importantly, said high gasoline prices have hurt customer spending and will affect the company’s second-quarter results.”
“It’s clear that the economy is growing, and it’s growing in a way you’d hope it would be in this point in the cycle,” said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers in Boston in the article. “”The economy is throwing a party, and the stock market’s not attending.””
In the first quarter of this year, Wal-Mart did rise about 14 percent from the same quarter last year, missing Wall Street’s predictions by 2 cents a share, but the recent news of the company’s low second-quarter earnings has caused investors to be a little nervous. “Wal-Mart skidded 95 cents to $47.65 after missing analysts’ expectations by a penny per share and saying that its 2005 profit forecasts could be difficult to achieve,” stated the article.
Despite the falling Wal-Mart stock , rival Target Corp. rose more than two shares, while Wal-Mart fell about the same amount.
“”There’s no question that higher gasoline prices have hurt Wal-Mart’s consumer, but Wal-Mart is struggling with store-level execution,”” said Bob Buchanan, a retail analyst with St. Louis-based A.G. Edwards in another article from the AP. “”They’re slow at check-out and they’re missing a lot of fashion on the selling floor. Target continues to do a better job in merchandising and executions. And its check-out is lightening fast.””
Though Wal-Mart has taken strides to add the trendy aspect that Target is so famous for, analysts say the discount powerhouse has a way to go. In recent years, Wal-Mart has dealt with a number of issues like discrimination, wage violations and banning certain products in its stores, which has caused many people to rethink their shopping habits at the store.
However, Target has added a number of designer names and trendy ideas to its store, adding a 15-percent profit increase that was a little ahead of Wall Street’s projections.
“Wal-Mart said quarterly net income grew to $2.5 billion, or 58 cents per share, in the three months ended April 30 from $2.2 billion, or 50 cents per share, a year earlier. The company said first-quarter earnings were boosted by $145 million, or 3 cents per share, from tax and legal resolutions. Excluding the items, earnings per share totaled 55 cents per share, a penny below Wall Street expectations,” stated the second AP article.
“”Our results were not up to Wal-Mart standards. Gasoline prices rose dramatically, Easter was early and spring was not,”” said President and CEO Lee Scott in a prerecorded call last Thursday, reported the AP. March was the most challenging month in the quarter he said.
“”We achieved record results in the quarter,”” said Scott in a statement taken by the AP. “”Yet with higher gasoline prices and a cooler and wetter spring than normal we missed our plan. We are making the necessary adjustments, and I anticipate better results in the second half of the year.””
As of April 30, 2005, Wal-Mart had 3,719 stores in the United States as well as 1,596 international stores.