Wal-Mart (WMT) stock showed more weakness on Wednesday, after investors punished the stock on Tuesday following a mixed earnings report. Wal-Mart has successfully grown its same-store sales in the U.S. for two quarters in a row, but investors are concerned that the company is sacrificing gross margin to push products out the door. Shares are down 5.9% over the past two days. The stock was trading above $62 per share on Friday, but is down below $59 today.
“Wal-Mart U.S. segment margins contracted 10 bps to 8.4%, resulting in decelerating EBIT growth of 1.4% as price investments were not offset by expense reductions and sales leverage,” wrote Susquehanna analyst Bob Summers.
Summers, who thinks the stock is worth buying, noted also that on a two-year basis the same-store sales numbers are less impressive.
“While moderately encouraging that same-store sales improved 20 basis points sequentially and traffic turned positive, the two-year stacked figure decelerated 30 basis points. Further, we thought the combination of an easier comparison (4Q12 comparison was 50 bps easier than 3Q12) and price investments would have driven a stronger acceleration. Nevertheless, we continue to believe that the Wal-Mart U.S. business is pointing in the right direction and anticipate sustained improvement over the next 12 months.”
Raymond James analyst Budd Bugatch also noted that the company’s international results lagged. He downgraded the shares to Market Perform from Strong Buy.
“Walmart’s domestic operations performed relatively well in F4Q. Comp-store sales,
total sales, and operating income at both Walmart U.S. and Sam’s Club were essentially in line with our expectations. The International
segment, however, reported sales of $35.5 billion compared with our estimate of $36.9 billion and adjusted operating income of $2.2 billion
versus our estimate of $2.3 billion. Despite its rapid growth, the International segment continues to work towards improving profitability
and returns.”
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