WMT Starts Holidays Early, Still Isn’t a Buy

by Adam Benjamin | November 4, 2013 1:10 pm

In an attempt to get ahead of the short holiday season, Walmart (WMT[1]) started seven of its Black Friday deals on Nov. 1. It’s an aggressive move to get out in front of the competition — many of whom are already offering their Black Friday deals on Thanksgiving.

But as we approach the holiday season — which can make up a huge portion of retailers’ revenues — how are things stacking for WMT? Will the aggressive sales tactics keep boosting the stock, which is up 6% in the past month? Or will thin margins and walk-in gators[2] keep the stock from performing?

WMT Outlook

WMT has been making headlines with two kinds of promotions. The company has quickly offered discounts on new Apple (AAPL[3]) products, inspiring similar price cuts from its competition — first with the iPhone 5C, and now with the iPad Air. And, in a blatant marketing move, the company announced in October that it would be promoting 25,000 employees on the spot[4]. Both moves are attempts to improve Walmart’s sullied image and give consumers warm fuzzy feelings about the company.

But consumers have still been tepid in 2013. And the near-disaster with the federal budget probably didn’t inspire people to go out and spend all of their disposable income on electronics. So it will probably take more than $20 discounts on $500 electronics[5] to get people in stores or online.

That’s bad news, especially considering the broader challenges the stock is facing. The company recently announced that it was closing 50 underperforming stores[6] in China and Brazil. That news comes on top of troubles in India[7], hurting WMT in some of the biggest growth markets. Given Walmart’s already enormous size — 11,000 retail units in 27 countries — growth is going to be plenty difficult to come by. Those international troubles only add to the problem.

So, sure, maybe Walmart’s early promotions will draw consumers and give WMT stock a short-term boost. But that’s not an investment thesis. The stock isn’t going to crash anytime soon, so WMT isn’t the worst investment you could make … but there are plenty of better ones out there.

Adam Benjamin is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:

  1. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  2. walk-in gators: https://investorplace.com/2013/10/6-foot-gator-tries-enter-florida-walmart/
  3. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  4. promoting 25,000 employees on the spot: http://news.walmart.com/news-archive/2013/10/29/walmart-kicks-off-holiday-season-with-on-the-spot-promotion-ceremonies-at-stores-across-the-country
  5. $20 discounts on $500 electronics: http://wallstcheatsheet.com/stocks/walmart-fires-first-in-ipad-air-discount-battle.html/
  6. closing 50 underperforming stores: https://investorplace.com/2013/10/walmart-close-25-china-stores/
  7. troubles in India: http://www.forbes.com/sites/walterloeb/2013/10/16/walmart-what-happened-in-india/

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