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How Wal-Mart Really Beats Expectations

by: Todd Sullivan September 05, 2008 | about stocks: WMT    
Todd Sullivan

Todd Sullivan

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This is a classic: just last month when Wal-Mart (WMT) came in at 3% comps and people were inexplicably disappointed and then guided for 1% to 2% for August, I said, "Anyone want to bet Wal-Mart is lowering projections to avoid the current scenario next month? Now Wall St. will lower "estimates", Wal-Mart will beat them and everyone will be happy...strange stuff." Guess what happened yesterday?

Wal-Mart  said Thursday, sales of groceries and back-to-school products helped its August same-store sales rise 3 percent, beating expectations.

Sales in stores open at least one year, a measure known as same-store sales, rose 2.8 percent at Wal-Mart Stores and 4.2 percent at Sam's Club for the four weeks ended Aug. 29. Analysts polled by Thomson Reuters predicted a 1.6 percent rise.

Including fuel, the world's largest retailer's total same-store sales rose 3.5 percent. Total company sales rose 9 percent to $30.67 billion in the four-week period.

"The underlying business performance for Wal-Mart U.S. continued to show strength, and the improved relative performance has resulted in market share gains," said Eduardo Castro-Wright, Wal-Mart U.S. President and Chief Executive, in a statement.

Isn't this just great? Same number but because the company issued different guidance, people were upset before and are thrilled now. Maybe Sears' (SHLD) Eddie Lampert, and Berkshire's (BRK.A) Warren Buffett are onto something by not issuing guidance.

It also goes to show that most of Wall St. simply bases their expectations on those set by the company.

Oh yeah...the company said it expects September same-store sales to rise 2 percent to 3 percent. Now if we come in at 3% again, we'll "meet the high end of expectations" and that will be good news. Four percent and people will be dancing. Such nonsense...

Disclosure: Long WMT, SHLD

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This article has 3 comments:

  •  
    Sep 05 08:30 AM
    Todd, not to be obnoxious but where have you been living that you just noticed this earnings game? In the 1973 - 1974 bear market I was interning at a broker [Hoppin, Watson & Co.] and noticed for the first time back then that companies and analysts did this. I'd see companies like Avon, Xerox. Burroughs and others have their earnings cut four or five times until the company 'hits' their expected goal then the stock would take off on "higher than expected earnings"! This is an old and awful Wall Street game that's turned me off for nearly 40 years.
    Reply
  •  
    Sep 05 12:29 PM
    If stock buyers are so dumb as to take their cues on "is that good?" from the media, analysts, or company guidance, they probably deserve whatever they get.

    I look at the balance sheet, income statement, insider trading, and the company's product or service in the macroeconomic environment to determine what long-term ROI can be expected. I'm honestly not sure how the crowd that gets their information from CNBC or MSNBC and buys on the greater fool theory manage to keep their shirts.
    Reply
  •  
    Sep 07 03:56 AM
    This company has got to be the worst run organization ever to grace the planet! My store does everything to destroy value, yet the people come in day after day to be abused. It is lucky for WAL-MART that the customer base has never seen real customer service! A true example of media hype!!
    Reply
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