Tuesday, May 19, 2015

Reuters / Wal-Mart Analysis On Why Wal-Mart Missed Earnings Estimates -- May 19, 2015

I was not going to post anything on Wal-Mart's earnings today, but something caught my eye that is just too precious to ignore. There were several stories. This one is from Reuters.

Wal-Mart Stores Inc on Tuesday became the latest U.S. retailer to report weaker-than-expected quarterly sales, saying consumers were pocketing tax refunds and savings from cheaper gasoline rather than buying unnecessary items.


Again, Wal-Mart says sales were down because their customers were pocketing tax refunds, and pocketing savings from cheaper gasoline than buying unnecessary items.

Repeat that again:
  • pocketing tax refunds
  • pocking savings from cheaper gasoline
  • buying unnecessary items
Let's think about that a minute. From all the news over the past few weeks and from historical data from over the years:

It's well-known that the average Wal-Mart customer is a huge believer in IRAs, Thrift Savings Programs, 401(k)s, investing in AAPL, and hedging, and thus were eager to add to their net worth rather than shop at Wal-Mart.

It has been reported over and over that a lot of folks expecting tax refunds were surprised when the IRS caught them cheating by reporting lower income to get those ObamaCare subsidies. Wal-Mart shoppers as a general rule over-estimate their income and remit quarterly tax estimates at a far higher rate than the rest of us.

12,000 miles / year = 1,000 mile / month = 1,000 / 20 mpg = 50 gallons of gasoline a month. A year ago, $3.20/gallon; this year, $2.80/gallon = 40 cents / gallon savings = $20 per month savings on cheaper gasoline.  That's barely one meal at McDonald's for a family of four.

"Buying unnecessary items" at Wal-Mart? Wal-Mart said that. Who would ever buy "unnecessary" items at Wal-Mart?

Anyway, that's the kind of analysis we're getting at Reuters these days. Parroting what Wal-Mart has to say why it missed estimates. The analysts should have know that Wal-Mart shoppers were pocketing tax refunds, and pocketing savings from cheaper gasoline than buying unnecessary items at Wal-Mart.

On the other hand, USA Today reports that Wal-Mart blames missed earnings because they were socially responsible (raising their minimum wage) and because of things out of their control (currency fluctuations). Remember, it's the analysts that forecast earnings (based on guidance, of course) but analysts should have taken currency fluctuations into account. We've had a full earnings season in which other retailers said the same thing.

With regard to wages, hasn't even had time to impact Wal-Mart's bottom line yet:
In February, Walmart announced that it would raise the minimum wage of its employees to at least $9 an hour this year and get to $10 by next year.
And, so there you have it.

I assume if I looked hard enough, I could find an article in which a reporter says Wal-Mart blamed the harsh winter in Tibet for missing earnings this most recent quarter. That would encompass weather, currency fluctuations, and the cost of heating yurts all in story.

For Wal-Mart shoppers and others who may be reading this, be advised this is not an investment site. Do not make any investment or financial decisions based on what you read here or what you think you may have read here. Do not make decisions on where you buy your "unnecessary items" based on what you read here. One can buy "unnecessary items" at a lot of places. I do it almost every day, and very seldom shop at Wal-Mart. Having said that, I usually go to Wal-Mart when I can't find what I need anywhere else. If you can't find it at Wal-Mart a) you did not look hard enough; and/or, b) you probably don't need it.


  1. The "finding stuff" comment is valid for a stocked Walmart, but they no longer exist.

    Dollar stores are killing Walmart and I find it so fitting.

    The newest generation of consumers just don't have the same patterns as previous generations; they're downsizing to quality not quantity. For example, look at Five Guys trajectory versus McDonald's. Same as Anheiser-Busch versus Sam Adams since the mid-1980s. I for one embrace this change.

    1. You are absolutely correct about quality -- Five Guys vs McDonald's is an excellent example. And, unfortunately for McDonald's, folks aren't going to visit McDonald's for their upscale hamburgers; folks looking for upscale hamburgers will go to Five Guys.

      We don't have a Dollar Store in the immediate area. Nor is Dollar Store conveniently located in our parents' home in southern California so I often forget about Dollar Store. But here in north Texas (DFW area) and in my hometown, Wiliston, the adage still holds: when I really, really need something, I can always find it at Wal-Mart.

  2. The quality needs to be at the right scale - $7 burger OK, $100,000 Tesla not so much.

    If there's no dollar store within a stone's throw, you live or visit a neighborhood that's well off. Dollar General has been invading New England for a few years, Family Dollar a few years before that. We're talking over 50,000 dollar stores across the country in the past decade or so. Kills Walmart slowly, keeps the Chinese economy expanding so we can sell them more coal.

    1. Yes, we live in a very, very nice area -- we were fortunate enough to be here to be close to our granddaughters. When we lived in San Antonio, we were in a very nice neighborhood, but there was a Dollar Store. I always told my wife we needed to shop Dollar Store first before going elsewhere; I'm sure we could have picked up 50 - 95% of what we needed on any given shopping trip.