Analyzing Wal-Mart (WMT)

By Yaser Anwar, CSC of Equity Investment Ideas

• WMT’s customer traffic remains strong thanks to consumables, "always low" prices and improvements made in apparel, consumer electronics, private label, and branded merchandise. To improve margins, WMT plans to increase inventory flow efficiency and expand global procurement efforts to new product categories.
• There have been a lot of changes in management at WMT recently. In my opinion, these changes should help the retailer better integrate its customer online and in-store experiences.
• The focus of the new CEO at WMT will be on driving market share gains, trying to maximize WMT’s economies of scale to negotiate better deals with suppliers, and enhancing the product mix.
• WMT’s focus on improved merchandising has helped to enhance average ticket. SAM’s Club has also demonstrated improved sales momentum recently, as the division increases its focus on the business member with a sharp and highly competitive pricing strategy.

"A key challenge for management will be to outline a clear path to improved results at the (top) stores where traffic remains soft as remodel activity and lower fuel prices have yet to translate into better same-store sales momentum," said Wachovia Capital Markets analyst Peter Benedict. (Source: Market Watch)

• With WMT looking to open 1.8K store special projects program since January, I believe this will will result in sales volatility during the first half. In 07, The Street expects WMT will complete at least 53 full remodels and special projects. Full remodels typically take 8 to 12 weeks to complete while special projects can take up to four weeks.
• According to management, following the completion of every store remodel, comp-sales/store experiences on average about 100 basis point comp lift compared with sales prior to store upgrades.

• WMT aims to drive comparable store sales through continued expansion of its supercenter format and by focusing on local market share positions. Operating over 684 million square feet globally, WMT aims to grow square footage at least 8% per year through the addition of over 60 million sq. feet in 07.
• For the 3rd Q of 07, management talked about their plan to focus on new store expansions to maximize ROIC rather than trying to maintain an 8% square footage growth target.
• Also, WMT will use excess cash to accelerate share repurchases, boost dividends and expand internationally through acquisitions. Recently WMT completed a management re-structuring in 07 to provide increased incentives to improve underperforming stores.
• Furthermore, WMT focused marketing efforts aimed at affluent customers in an effort to raise average transaction size. Investors should view this approach as positive, which will result in improved performance at existing locations as WMT maximizes existing store volumes.
• According to the excellent Stock Pickr, some of the good funds which I could identify with stakes in Wal-Mart were: Joel Greenblatt, Clarium Capital and Citadel (for the rest click here)

http://www.equityinvestmentideas.blogspot.com/