Wal-Mart Stock Crashes

The biggest news item of the day on Tuesday was the crash in Wal-Mart stock after disappointing earnings. The stock’s decline of 10.18% was its worst trading day since January 1988. This decline made the Dow the worst performing of the major indexes. Earnings per share were $1.33 which missed the expectation for $1.37. Revenue was $136.3 billion which beat expectations for $134.9 billion. Same-store sales growth was 2.6% which beat estimates for 2.2% growth. Total sales were up 4.1%. Traffic was up 1.6% and ticket value was up 1%.

The reason the stock fell was because of the weak e-commerce growth which is supposed to be a strong point now that the company has integrated its Jet.com purchase. The sales growth from e-commerce was only 23% as Wal-Mart’s ability to catch up to Amazon appears to be hamstrung. Last quarter the company had 50 % year over year growth in online sales. The company is now lapping quarters after the acquisition of Jet.com which might be hurting growth. The fiscal 2019 estimates expect e-commerce to grow 40%. While that’s great, investors were shell-shocked by a disappointment in the most important quarter of the year. The other guidance was for EPS between $4.75 and $5, same-store sales growth in Wal-Mart U.S. of at least 2%, and 4% same-store sales growth at Sam’s Club locations.

The company is planning to try out a delivery program where employees drop off customer orders on the way home. This is in response to Target buying the delivery service Shipt and Amazon considering creating its own delivery service. Target buying Shipt is analogous to Wal-Mart buying Jet.com. The old brick and mortar stores are trying to play catchup to Amazon. That involves paying top dollar for startup firms which usually aren’t profitable and integrating them into their business which means scaling their services to meet the needs of all their customers. It seems clear that investors will bet on Amazon given its successful track record of growth. If Amazon was to compete with UPS and FedEx, their stocks would crater. However, there’s a small chance the company buys a shipping firm like how it bought Whole Foods. Amazon buys established players, while brick and mortar stores acquire startups.