New York City, New York – (StockNewsDesk) – 07/27/2014 —The world’s largest retailer finds itself struggling with declining sales growth over the last five quarters. WalMart has under performed and not benefited from the improvement in job gains over this period of time.
Other sources of concern are a weak stock price, rising import costs, and a battered public image. The retail giant made a move from the succession battle between Bill Simon and Doug McMillon, for the CEO position. Simon lost, and his departure was inevitable, though reportedly on good terms.
Gregory Foran has been named as Simon’s replacement. Formerly head of operations in Asia, Foran will now be in charge of US operations. Simon often strayed from the WalMart playbook in interviews and commentary to analysts. WalMart’s publicists would often have to distance themselves from Simon’s negative comments on the economy and the state of the lower and middle class consumer.
Foran has been rewarded for contributing most to WalMart’s current growth with his aggressive efforts in Asia, specifically China. His advocates say that he will bring a fresh perspective to the staid US operations. Some of Foran’s achievements include more efficient operations, reduced inventory costs, increasing revenue, and a positive public image.
In contrast to Foran, Simon’s four year tenure ended with an ignominious mark, as this is the longest time in recent memory that WalMart has lost sales domestically. The shakeup is a sign that the company is beginning to rethink its current strategy and expand into higher margin products. The rise in import prices has undercut WalMart’s competitive advantage. Simon was ill prepared for this change in dynamics.
Just a year ago, Simon was seen as the favorite to become WalMart’s new CEO. The unimpressive performance of WalMart domestically contributed to his failure to land the top spot. So, although it is not surprising that Simon lost his position, the timing of the ouster points to more significant dissatisfaction with Simon’s performance than the company is letting on.
It is unusual for companies to let go of top executive so close to earnings announcements, not to mention back to school and holiday seasons. Typically, retailers wait until these busy seasons are over until they commit to change in management. There is no doubt that, given the timing of this announcement, McMillon is signaling to his staff that current metrics are unacceptable.
One of the major factors hurting WalMart is the lack of economic recovery for Wall Street’s main customer base – income earners in the bottom half. Despite some modest improvements in manufacturing and employment data, many have not participated in the economic recovery.Currently, however, the recovery in financial assets is beginning to spread to Main Street. This would be the most bullish catalyst for WalMart.
WalMart is also experiencing significant pressure from online discount retailers and dollar stores. WalMart is falling behind its competitors in the fastest growing retail segment – online commerce. The future of retail is online, as it grows 3 times faster than brick and mortar retail, and while ramping up its online sales, the key is whether WalMart can maintain its status as a dominant online retailer.
Stock Price Impact
Surprisingly, the shakeup had little impact on WalMart’s stock price. It was expected that McMillon would begin to put his own stamp on the company by moving his allies into key positions. The only real shock is the timing of the move which many investors seem to have positively interpreted as a signal that McMillon is not taking the slide in domestic sales lightly.
Here is a 3 year, weekly chart of the WalMart stock:
The chart does not look too bad on an absolute basis, however, on a relative basis, WMT has been performing abysmally. Since October 2012, WalMart has been essentially trading sideways. During the same period, however, the broader indexes are up almost 40%. This under performance is a sign that there is a stealth distribution in the stock and, if the indexes roll over, WalMart could see some significant downside.