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Walmart’s (NYSE:WMT) share price has dropped by 3.06% to 76.61 in the wake of a flat first quarter earnings report. The share price had already stumbled by 2.7% early this morning, more than an hour before the opening bell. Earnings per share for the quarter retracted 3.5% to $1.10.
Walmart’s new CEO, Doug McMillon, reassured that “Walmart’s underlying business is solid, and I’m confident in our long-term strategies. We’ll continue to invest in price and enhance our service to improve sales.” So far, it appears that his words are falling on deaf ears.
Keeping some perspective
As far as the Walmart share price is concerned, I don’t see much reason for concern. Sure, the downturn is notable and, in light of the current news, not unexpected. However, WMT has been trading above its 60-day moving average since 31 March. Although it has fallen below the average today, it is only going to take an increase of less than two basis points to rise above it once again. During the writing of this article, the shares have regained ground to 77.43. There is just not going to be a massive lack of confidence in – or exodus from – the megalith named Walmart.
On the other hand
One thing that I learned, after 16 years of living in the backyard of Walmart world headquarters and from rubbing shoulders with now former high-ranking executives: Never believe what Walmart is telling you.
Just when you think that you understand the facts, you discover that they have left the truth twisting in the wind. They are artists of ambiguity, kings of cover-ups, experts at speaking out of both sides of their mouths, and masters of deception. They destroy whatever gets in their way and dispose of anyone whom they decide is replaceable, regardless of that person’s or entity’s proven quality, service and loyalty.
People won’t bite the hand that feeds them
Walmart’s biggest profit maker is its grocery section. It is my opinion that Wally World is concerned that the section is under growing attack. It appears, at least in the US, that Walmart has taken about all of the share of the grocery market that they can get and that we are entering an extended period of backlash from customers and competitors. For many, Walmart is the grocer of convenience, not the grocer of choice. The thing that was their strength has now become their weakness.
People began to favor Walmart for groceries because they could have their car serviced (at some locations) and shop for a wide variety of dry goods, home furnishings, and electronics. But the quality of their product offerings has declined significantly over the past 20 years. That means that Walmart has crossed the line in the eyes of discerning customers who prefer better quality. When those customers have to go somewhere else to find that quality, going to Walmart for groceries is no longer the convenience it once was.
Where to next?
Walmart’s days at the top of the food chain are not over yet. Not by a long shot. But, at least in the US, where Walmart calls home, we may be witnessing the beginning of the end, as the quarter that just ended is one more in what is a growing string of disappointing reports, including a holiday season in which profits were down 21%. The company is going to have to do a lot of scrambling to recover from its current trend that includes a record of decline in operating income of more than 3% in the previous fiscal year.
It seems to me that Walmart has to wage a war on two fronts. They have got to stop the leaks that are causing operating income to decline and they have got to find a way to fend off the multiple entities that are establishing a well-defined alternative to each of the company’s retail sections.
