When Does Time Run Out For Wal-Mart CEO?

When does time run out for Wal-Mart CEO Mike Duke? The stock market seems to believe he has done a good job. Wal-Mart’s stock trades at $55.38, about midway between its 52-week high and 52-week low. Shares are modestly higher since he was promoted to chief executive in 2009. Analysts tend to rank the shares a weak buy.

Wall Street believes that Wal-Mart’s future is bright, but not terribly bright. Sales at the company’s flagship unit have fallen between 1% and 2% in the last four quarters. They fell 1.8% in the latest reported quarter. But, earnings have risen because of the firm’s rapidly growing business overseas.

Wal-Mart posted EPS of  $1.34 for the fourth quarter. Revenue will be about $115.6 billion. Wal-Mart’s results will be somewhat marred by slow holiday sales. That is part of the problem. Domestic sales have not been strong enough to take market share from rivals such as Costco (NASDAQ: COST) and Target (NYSE: TGT). Wal-Mart cannot recapture the US growth rates it posted a decade ago. The formula to turn around domestic sales has been elusive.

Is Duke responsible for Wal-Mart’s failure in the US, or is the firm simply to big to grow? The answer lies in the failure of Wal-Mart to expand into large cities. It has no foothold in New York or Chicago. Wal-Mart’s stronghold remains in the suburbs and in rural communities.  Duke has to be held to account for that, even if cities have resisted Wal-Mart’s expansion plans.

Wal-Mart, though, has had recent success in some urban areas. High unemployment has caused cities to re-examine Wal-Mart’s ability to create jobs. Even if the huge retailer will cause some smaller stores and chains to close, it may be a risk cities are willing to take. Wal-Mart can guarantee jobs. There is no guarantee it will run other retailers out of business.

Duke’s tenure at Wal-Mart is damned by his failure to gain a foothold in urban areas which offer the retailer the best chance to jumpstart growth at its moribund US division.

Douglas A. McIntyre