Wal-Mart Will Be Great Again

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People are writing off Wal-Mart (WMT). They say that Wal-Mart will never be great again. Citing the company's retail history, failed attempts at reviving its image, and operational meandering, they pronounce the retail giant practically dead on arrival.

They're wrong. I own Wal-Mart stock and believe there are a number of reasons why the company -- at least as a long-term investment – will in fact be great again.

A Tale of Two Companies

Wal-Mart's life as a public company can be divided into two eras.

During the first -- from 1972, when it was first listed on the New York Stock Exchange, to the end of 1999 -- the number of Wal-Mart stores in the U.S. grew from 51 to 2,985. U.S. sales and pre-tax profit took off, growing more than 30% annually, from $78 million to $109 billion and $5.6 million to $8.7 billion, respectively.

Wal-Mart shareholders were rewarded handsomely during that period: Their stock went up -- on average -- 30% each and every year. To put that in perspective, every dollar invested in Wal-Mart in 1972 would have turned into $1,000 by 1999.

Of course, it's been a different story for Wal-Mart shareholders over the past 10 years.

What Has Wal-Mart Done for Shareholders Lately?

From 2000 through the end of 2010, Wal-Mart stock has returned -1% annually, turning every dollar invested into $0.90.
Are store numbers dwindling? Profits dropping? Hardly.

In fact, over the past 10 years, Wal-Mart has continued to open stores in the U.S., and domestic sales and profits have increased 8% annually, to $260 billion and $19.9 billion, respectively. That's not as good as 30%, of course, but the disconnect between the company's performance and the performance of its stock is interesting.

One explanation for the rising profits and declining stock is that the stock market is forward-looking and pricing in a dismal future for Wal-Mart, as the Motley Fool's Rick Munarriz argued in his article about Wal-Mart's demise:

  • Yes, same-store sales were down for the ninth consecutive quarter in the U.S., with the consumer here only getting more and more stressed.
  • It's true that Wal-Mart's online commerce division is far from an industry leader.
  • And people still -- as the comments that followed Rick's article demonstrate -- don't always have happy thoughts about Wal-Mart.

But that's an incomplete picture of Wal-Mart's real potential. It omits a huge and fast-growing part of Wal-Mart's business that should help shareholders over the next 27 years earn far, far better returns.

Don't Write Off Wal-Mart Just Yet

In the United States today, there is roughly one Wal-Mart for every 81,000 people. In the international markets Wal-Mart currently operates in, it has one store for every 725,000 people.

That suggests a global capacity for Wal-Mart stores of up to 40,000. The company may never get there (remember the rest of the world tends to be a lot poorer), but the opportunity to grow abroad is significant.

FY 2000
FY 2011
Annualized Return
International Store Count
1,004
4,557
15%
International Sales
$22.7 billion
$109.2 billion
15%
International Pre-tax Profit
$817 million
$5.6 billion
19%

What's more, the company is only just getting started. Sales abroad are rising rapidly, with a 16% increase in the most recent quarter. Although Rick noted that the top line benefited from currency effects, isn't that the point of international expansion? In a world where the dollar is weakening and will continue to do so, those benefits are both real and tangible.

Wal-Mart's Third Act Is Gonna Be a Doozy

Writing off Wal-Mart because of slow domestic growth without considering its accelerated international operations could cause investors to miss a great opportunity.

Put it all together, and I suspect Wal-Mart can grow sales and profits 6% to 10% annually for many years to come. What will the stock do? If history is any guide, it won't keep falling. My own analysis suggests 12% annual returns are more than achievable -- and that Wal-Mart will be great again.

Tim Hanson is The Motley Fool's Lead International Advisor. He owns shares of Wal-Mart. The Motley Fool owns shares of Wal-Mart, and Motley Fool newsletter services have recommended buying shares of Wal-Mart.


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141 Comments

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Kevin Cardinale

As soon as you wrote: "I own Wal-Mart stock ", you lost all credibility for your unbiased story.

The fact is Wal-Mart has had 8 straight quarters of decline. Their grocery adventure is going to be an abysmal failure. Grocery is not something you go into for make mega profits, regardless of where you get your product from.

There is not talk of them removing the CEO, due to lackluster quarterly gains.

I am sure you're trying to bolster support for Wal-Mart, but your article serves no purpose and has no effect on stock prices nor quarterly gains. You may try and cheer lead Wal-Mart all you want, but it is to no avail.

Finally, China is NOT doing fantastic. They have rampant inflation and have unhinged the Yuan from the USD, meaning they will no longer deflate their currency. What does this mean for Wal-Mart? This means, as the Yuan gains value, Wal-Mart product prices will necessarily have to increase of their own accord. If they remain unchanged, it will only mean that the factories are using cheaper and cheaper ingredients to make the products, so the already abysmal quality of Wal-Mart products will plunge into the depths.

And, another thing. Do not defense companies sending jobs overseas. The US government is subsidizing all overseas jobs and giving tax breaks to companies to send jobs overseas. You have only yourselves to blame for jobs being pumped out of the US.

Literally we are paying companies to send jobs overseas and then being told "oh the American worker charges too much in labor cost". It is an utter and complete lie. The companies do not NEED to send jobs overseas. They make money from it, twice over.

Do not complain about something, if you don't have the energy to at first research it.

August 31 2011 at 12:36 AM Report abuse rate up rate down Reply
Mr Wonderful

They won't be great in my mind till they stop making everything they sell in China, They shipped all the manufacturing jobs there, China seems to be doing great,thanks to Wal-Mart ,Lowes,Home Depot,Target and K-Mart. These companies shipped entire factories to China,giving them the manufacturing technology to bury us. It's like Khruschev once said,"we will sell them the rope to hang us with",and it is true.

August 22 2011 at 11:51 AM Report abuse +1 rate up rate down Reply
o000hbabybaby

The Walmart in my area does not have people that are customer service oriented. They are not helpful to the customers. I rarely go into the store. When Walmart realizes that the it's "people" who buy their products, and that "people" need jobs that pay well, and have good benefits, then not only will Walmart fail, but our whole society will continue on this downward spiral. People before profits, and while profits are important, decisions have to put people first. Walmart can do well again, but not until it goes back to the family roots that put it on the map in the first place. We need products that are priced fairly, not cheap. We need products that promote good health, not genetically modified foods that hurt our health. We need products made here in the US and support our people here, so they can provide for their families. Anyone listening?

August 22 2011 at 9:47 AM Report abuse +1 rate up rate down Reply
gislrain

To all complainers - either you go to Walmart all the time or you never go. If you go there all the time, choose somewhere else to go, I am quite sure there are other choices - if you never go, then you have no experience to shop in the store nor what merchandise they offer. I go to Walmart, if I happen to be in the area, but I also shop very much in other places and find no big differences except the mileage.

The store I go to, I have noticed that they employ mostly elderly ladies as cashiers, who would hardly get a job someone else. Yes, they are quite slow and don't seem to smile a lot and I often wonder why are you here? I am sure they are not there, because they absolutely love to go to work, but that they have no choice. As far as the goods sold made in China - where does one go to purchase anything, which is not made in China or other foreign countries? All you complainers, what type of car do you drive? Although, many foreign auto makers produce their cars in the US, many of parts come from another country and the bulk of the money made goes to their own country. The foreign companies choose a depressed area in the US to build their plant where the different state and local politicians offer all kinds of deals to compete. I am 75 and I still drive only US made cars, although, I am aware that many parts are made somewhere else. I remember 45 years ago, I had purchased a portable radio for my husband, he got really mad at me that I did not notice that it was made in Japan. The sound was so great, although not exactly cheap, we did not return it and my husband had it in his little workshop until he died 10 years ago. What I am trying to say, we, the American people, are to blame for the invasion of foreign goods, which sneaked slowly into this country. I like home grown produce, but, who is harvesting them - mostly illegals - so what is the answer?

August 22 2011 at 9:45 AM Report abuse rate up rate down Reply
awwtfp

Walmart great again? Hopefully never. America can't be great again until Walmart type operations are gone.

WM is like a virus in middle America. It reminds me of how the Dutch Elm disease spread through the states destroying all the Elm trees. What is good about the chain or has ever been good besides the cheap prices of crappy products. The beat you down on the inventory supply side, ask ANY person or company who sells products to WM, with their draconian Chinese buy tactics. And then they run crappy stores with zero amenities.

Maybe Americans are sick of these ugly boxes and perhaps, like my mother said, I am tired of their junk. Also the stigma of shopping at these giant China marts has finally kicked in. WM needs a image makeover but at this point I don't know if that will help.

Kids now tease other kids on the playground about having Walmart clothes on. "I bet you got that at Walmart" is something that no kid wants to be teased about. This article was written by someone who is invested in the WM brand of crappy, 4th rate, products so of course he paints a sign of good fortune to come.

Hey WM still has a lot of fans but so did the St. Louis Browns. Granted WM is starting to get a lot of the blame for things such as the trade imbalance with China and the symbolic decline of the American worker benefits but they made a lot of money over the decades so who feels sorry for them?

August 22 2011 at 8:00 AM Report abuse rate up rate down Reply
1 reply to awwtfp's comment
gblank1603

I guess you shop at Target and buy their China junk too

August 22 2011 at 9:15 AM Report abuse rate up rate down Reply
rjen164497

Why are you blaming Walmart for selling Chinese goods? Where else can they get merchandise to sell? All the companies who make merchandise had to go to china because of labor cost in America. Unions and Ted Kennedy forced American manufacturing out. Ted Kennedy pushed Minumum Wages up every year. Unions then wanted more for their people. Cost to make goods had to go up. Customers complained, so manufactures went to China and other countries where people would work for what was good wages for them. Walmart and all other stores have to keep prices low or you won't buy. Would you buy a shirt made in the USA by union workers for $100 or one made in China for 19.99?

August 22 2011 at 7:38 AM Report abuse +1 rate up rate down Reply
paulakatauskas

Walmart can start by making sure the shelves actually have items on them instead of big gaping holes where nobody has bothered to refill the shelves. Secondly, they need to get rid of all the people that work there. I would rather drive an hour and a half to my nearest Kmart than go to Walmart. At least the staff is friendly, and not just the person standing at the front door and the cashiers don't act like they are doing you a favor by checking you out. The managers at Kmart actually ask if you need help instead of like the managers at Walmart who stand in the middle of the aisle and won't move even after you say Excuse Me 3 times. The so-called customer service people at walmart need to actually learn that without their customers THEY WOULDN'T HAVE A JOB.

August 22 2011 at 6:41 AM Report abuse +2 rate up rate down Reply
FIFTY

Doubt Walmart will be great again because if so, Walmart would have opened foreign stores on a timely basis in order to prevent a stock decline.

As a corporate strategic planner, we'd brainstorm solutions to maxing out the stores in the United States. How can we keep growing at the same rate so our stock prices don't fall. There are basically two or three solutions 1) raise domestic prices, 2) open foreign stores and 3) set up a third kind of store (Walmart, Sam's, ?). Something is preventing Walmart from opening up new foreign stores. Maybe they aren't profitable enough or there isn't enough wealth in these other countries.


If Walmart did that, then it failed. If it didn't, then its management is short-sighted and likely hopeless.

August 22 2011 at 5:54 AM Report abuse +1 rate up rate down Reply
Charles

How many decent jobs in this country have been replaced by Wal-Mart jobs? When we talk about unemployment numbers, how many of those not listed as unemployed, who previously had good jobs, are now working for Wal-Mart, because it was the only job available? That would be for lower wages, my guess in some cases drastically lower, half or less of what they were previously earning, diminished or nonexistent benefits, terrible working conditions and employee mistreatment. It doesn't surprise me that Wal-Mart is delivering negative returns to its shareholders while the Wal-Mart brat heirs continue to amss one of the largest multi-billion dollar fortunes in the world, and the Red-State Repubs who hypocritically tout patriotism and love for country and vacuously waive American flags continue to be their most loyal customers.

August 22 2011 at 3:46 AM Report abuse +1 rate up rate down Reply
1 reply to Charles's comment
gblank1603

What's the average wage paid by WalMart??? Didn't think you knew

August 22 2011 at 9:17 AM Report abuse rate up rate down Reply
Charles

How many decent jobs in this country have been replaced by Wal-Mart jobs? When we talk about unemployment numbers, how many of those not listed as unemployed, who previously had good jobs, are now working for Wal-Mart, because it was the only job available? That would be for lower wages, my guess in some cases drastically lower, half or less of what they were previously earning, diminished or nonexistent benefits, terrible working conditions and employee mistreatment. It doesn't surprise me that Wal-Mart is delivering negative returns to its shareholders while the Wal-Mart brat heirs continue to amss one of the largest multi-billion dollar fortunes in the world, and the Red-State Repubs who hypocritically tout patriotism and love for country and vacuously waive American flags continue to be their most loyal customers.

August 22 2011 at 3:44 AM Report abuse +1 rate up rate down Reply