by Jim Woods | August 12, 2009 7:25 am
In little more than a day we’ll find out how well retail giant Wal-Mart (WMT) performed in its most recent quarter. The Dow component is set to reveal its earnings on Thursday, Aug. 13, before the opening bell. According to First Call, the company is expected to earn 86 cents per share for the second quarter, a number equal to its quarterly profit in the same quarter a year ago.
If the estimate comes in as anticipated (or even anywhere close to consensus estimates), it will mean yet another very profitable quarter for the retailer amid the worst economic downturn since the 1930s.
It is my contention that by consisting delivering this profit to shareholders—along with the plethora of other benefits to society the company provides — Wal-Mart should be viewed as a paragon of virtue in corporate America.
Now I am quite aware that calling Wal-Mart a quintessential example of goodness is going to make the army of Wal-Mart haters out there furious. Well, good. It’s about time they were educated on the virtue of Wal-Mart from an unabashed defender of the morality of profits.
Wal-Mart serves customers more than 200 million times per week at more than 8,000 retail units under 55 different banners in 15 countries. Impressive, yet even more impressive is the 2.1 million people the company directly employs. And this staggering number of jobs created is just the direct Wal-Mart employment. There also are countless numbers of people employed as the indirect result of Wal-Mart’s existence.
It almost goes without saying what a remarkable success story Wal-Mart is and continues to be, but for the benefit of the naysayers, here’s a little reminder. Founded in 1962 as just a mom-and-pop store in a small Arkansas town, the company has managed to grow into the biggest retailer on the globe. Under the direction of its brilliant founder, the late Sam Walton, the company managed to create more jobs and more wealth than nearly any other corporate entity in history.
Those two achievements alone should be enough to view Wal-Mart as a paragon of virtue, but if you listen to the company’s detractors, it achieved all this by preying on local businesses and exploiting workers.
But to the company’s detractors, I ask you this: How did Wal-Mart get its customers? At gunpoint? Of course not. The only gun being held to the head of consumers is their own desire to pay less for products. Through innovative technology, streamlined store operations, huge economies of scale and an unswerving focus on customer service, Wal-Mart has managed provide the low-cost goods and the service consumers want.
As for Wal-Mart’s employees, what gun is being held to their heads? Is it the gun of competitive industry wages, a generous employee discount, paid vacation and holidays, the opportunity for advancement, a 401(k) plan, an employee stock purchase program or the medical, dental, life and disability insurance coverage for a large portion of its workers?
In my opinion, the vitriol directed at Wal-Mart from its many detractors comes from a hatred of achievement. It’s what novelist/philosopher Ayn Rand called the, “hatred of the good for being good.” Also, the company’s most ardent detractors are those who harbor pseudo-collectivist notions of the very role of business in society.
In the detractors’ minds, companies exist to provide a “living wage” and employment to those who “need” jobs. It’s the social needs of society that come first, according to the underlying creed of Wal-Mart’s detractors, and not the need to make a profit.
But as we’ve already seen, the fact that Wal-Mart provides millions with low priced goods — and by extension, creates wealth via the low-price savings dividend we all benefit from — while employing millions, is reason enough to proclaim them virtuous.
But I think Wal-Mart’s real virtue lies in the fact that the company continues making profits for its shareholders.
As an investor, I want to put my money behind a company dedicated to making profits. Much like those “socially responsible” mutual funds that eschew tobacco and alcohol stocks on moral grounds, my version of socially responsible investing — I call it morally responsible investing — is to invest in companies dedicated to the moral cause of maximizing profits.
You see, it is only through the moral act of making a profit that all ancillary benefits to society — e.g., wealth creation and job creation — can be reaped. Therefore, it is on moral grounds, the moral grounds of making a profit, which compel me to consider Wal-Mart shares for any portfolio.
But despite these strong moral grounds, my reason and my self-interest (two equally moral premises in my view) tell me that an unqualified recommendation of the shares here would be irrational.
Certainly, Wal-Mart has proven a nearly unstoppable force as a retailer. Unfortunately, the price performance of the company’s shares over the past 12 months hasn’t quite matched its consistent delivery on earnings per share.
Before committing any money to Wal-Mart shares, I’d like to see the share price — and indeed the share price of stocks in the retail sector at large — begin to recover. If the company can beat consensus estimates on Thursday, and if its guidance for the rest of the year is upbeat, it might be the start of a renewed surge in the shares.
If this happens, it may give me the green light to take the moral step of acting in my own rational self-interest and buying Wal-Mart shares.
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