How can you go wrong with the world’s largest retailer? For that matter, how can you doubt the stock-picking prowess of Warren Buffett’s Berkshire Hathaway (BRK.B)?
Yet, there it is. The $85 billion fund owns nearly $4 billion worth of Walmart (WMT) after Q1’s addition of 1.7 million shares, making it Berkshire’s sixth-largest holding.
On the surface, Walmart seems like the quintessential Buffett/Berkshire pick. It’s an easy-to-understand business, it has been in business for decades, and the trailing ROE of 23.6% is more than adequate. But WMT might finally be failing to meet another of the Oracle’s important rules. Because customer service and merchandise management have been handled so badly, the company might well no longer have favorable long-term prospects.
That’s not to say Walmart’s going anywhere. But Walmart’s foot traffic actually fell in the fourth quarter of last year. It wasn’t by much, but all big trends start as small ones. And we just found out that first-quarter revenues and profits came in under the bar.
In this case, it’s likely a sign that customers are fed up enough with empty shelves and poor service to actually alter their shopping habits.