Walmart (WMT) stock, down 16% year-to-date as of this writing, hasn’t performed this poorly since its 5-month losing streak in 1974.
Currently, shares trade just barely above Walmart stock’s 52-week lows, and far, far beneath the 52-week high of $90.97. And the Street’s bearish tract isn’t losing any steam — three of the four most recent analyst calls downgraded Walmart stock (the fourth rated it “neutral”).
Walmart stock just isn’t the traditional value buy it used to be, and here’s why I think WMT will sooner drop another 16% before gaining back its losses.
Walmart Stock Could Fall on Legal Issues
Look no further than InvestorPlace’s own thoughts on the risk associated with Walmart stock for the dodgy tax implication, namely that Walmart could be in trouble with the SEC and IRS for stockpiling $76 billion in overseas assets.
Walmart also has a long, sordid relationship with employees and customers, which means Walmart gets sued a lot.
The retail behemoth also isn’t helping anything by reviving its greeters in a test capacity at some 300 stores out of 4,500 U.S. locations.
Greeters were originally conceived by Sam Walton as “a warning to the thief” in the ‘80s. To be fair, theft is a pretty big issue for the company, causing losses in the ballpark of $3 billion per year.
So Walmart greeters are theft deterrent. But greeters confronted with shoplifters risk confrontation with determined thieves who aren’t scared off by an employee making a barely livable wage.
Worse, Walmart opens itself up to further liability over employee treatment, as was the case with Candis Riggins, who sued WMT late last year for discrimination. Riggins says she was repeatedly forced into roles that risked her health during pregnancy.
Questionable Business Practices Hurt Walmart Stock
Walmart’s current management may be hurting sales even more than shoppers looking for five-finger discounts.
In the most recent quarter, WMT earnings declined 7% to $3.34 billion, and operating income across all of WMT divisions fell. Earnings this year are expected to drop 6%, from $5.07 per share to $4.78. Walmart’s earnings troubles span everything from the stronger dollar affecting international sales, to increased costs and paying workers a higher minimum wage.
And the plug Walmart is using to seal the leak in revenue has some glaring holes. Walmart wants vendors to scale back advertising in order to focus on slashing prices … but it also plans on requiring 10,000 of its suppliers pay fees for stocking their items and housing them in WMT warehouses — a shift in the way Walmart has traditionally done business.
Here’s what an anonymous consultant interviewed by Reuters had to say:
“Not doing these things has helped Walmart get the lowest cost from vendors historically…You can’t increase the cost of doing business and expect to get the best cost.”
This isn’t the only move Walmart has made under CEO Doug McMillon to alienate suppliers. In April, McMillon dialed down the company’s advertisements to continue pushing its mantra of “everyday low prices,” and mandating suppliers not mention Walmart in advertisements unless the product is exclusive to Walmart.
The move isn’t without criticism; Kellogg (K) emphasized WMT’s everyday low price strategy as a negative factor in Kellogg’s most recent earnings, and Mondelez (MDLZ) attributed WMT’s strategy to a decline in revenue.
WMT Competition Is More Popular With Millennials
If you really wanted to go contrarian here and buy Walmart stock on a deep discount to its highs, you might point to WMT growing earnings through its investment in e-commerce and neighborhood store format. If Walmart’s management grows earnings significantly through an investment in millennial traffic, Walmart stock could be deeply undervalued right now.
But let’s face it, WMT isn’t the cool kid in town — it’s simply the only option for some.
And, as much as Walmart wants to be Amazon (AMZN), WMT doesn’t come close to Amazon’s online audience, which gets 182 unique monthly hits to WMT’s 86 million. Walmart’s online retail which translates into just 2.5% of WMT’s total revenue.
Looking at the last holiday quarter, Walmart’s digital sales rose only 18% to Target’s 40%. Target, however, isn’t simply making itself into a lesser Amazon — it’s rethinking the quality of groceries it shelves, in hopes of bringing millennials into its stores.
While WMT does bring in a lot of online traffic, Walmart’s 675 thousand Twitter followers pales in comparison to Target’s 1.6 million and Amazon’s 1.9 million. Considering millennials find a much more established online presence in Instacart, Amazon or Google (GOOG) Express for their same-day delivery needs, there doesn’t seem to be much enthusiasm in a revitalization of Walmart stock for now.
So, all in all, it doesn’t look like there’s much hope for Walmart’s near-term outlook.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
