Wal-Mart have huge challenges

Wal-Mart is an interesting case. While the stock market have plummeted, Wal-Mart have been strong so far in 2016. Up over 8%. Wal-Mart announces earnings on Thursday and what can we expect from a retailer with so many challenges in the market right now?

Estimize calls for EPS of $1,45, which is one penny lower than Wall Street. Revenue expectations of $130,513B are greater than the Street`s consensus of $130,461B. Revenue estimates have fallen by almost $1B in the last 3 months.

This quarter it is expected to post a 10% decline in EPS YoY, with revenue estimated to fall 1%. Declining expectations have to do with guidance Wal-Mart gave in October, lowering FY 2015 guidance and claiming YoY sales growth would be flat due to wage hikes and FX headwinds. WMT

Wal-Mart have 11,600 stores and know that the market have changed to a more difficult retail climate. Wal-Mart said in January that it will close 269 stores worldwide, but it also said that in the next year it plans to open about 140 new stores nationwide.

In the U.S, Wal-Mart will also shut down all 102 Wal-Mart Express locations, which is a pilot program that started five years ago. It will close 23 Neighborhood Market locations, 12 Wal-Mart supercenters, 7 stores in Puerto Rico, 6 discount centers and 4 Sam`s Clubs.

Many claims that Wal-Mart have strong competitions from Amazon, and Wal-Mart said it will focus more on e-commerce and expanding pick-up services for customers. The retailer will open 50-60 new Supercenters, 85-95 new Neighborhood Markets and 7 to 10 new Sam`s Clubs across the U.S in fiscal 2017.

The retailer was a leader in grocery sales from mid-1990s to 2000s. Grocery still makes up about 55% of its revenue.

Wal-Mart`s ”click and collect” concept, where customers can order online and then get their merchandise at the store, give the workers more fear that this could be the beginning of more cuts in the future.

A big surprise for many was Wal-Mart`s announcement to raise base wages for its U.S workers. Wal-Mart is a cost-conscious retailer and it raised hourly wages to a minimum of $9 last April, and is set to bump them up to $10 this February.

The federal government has not raised the minimum wage since 2009 when  it lifted it from $2,15 per hour to $7,25 per hour.  Some cities are planning to raise wages to $15 per hour.

Wal-Mart is not the only one to close its stores. Sears Holding Corp will close a number of Kmart stores, while Macy`s will close 40 and cut 4,800 jobs. E-commerce and an improved superstore experience are growth drivers for Wal-Mart, but wages can be a challenge in the future.

Amazon are more efficient and generate $650,000 in revenue per employee. To compare, Wal-Mart generate $220,000 and this is a disadvantage for Wal-Mart with 2,2 million employees vs Amazon`s 154,000.

The average employee at Costco makes $21 per hour, so Wal-Mart have a lot of challenges now.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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