Reality Bites Wal-Mart Stores, Inc. (WMT); Shift to e-Commerce Slowing Revenue Growth

Wal-Mart Stores, Inc. (NYSE:WMT) had to lower their full-year forecast on Thursday as same-store sales continued to remain flat. Second quarter sales rose by 2.8% to $119.3 billion, while profit inched up by 0.6% to $4.09 billion. Despite slightly surpassing analyst expectations in revenue,  Wal-Mart Stores, Inc. (NYSE:WMT) cut their full-year forecasted earnings to $4.90 to $5.15 per share, down from $5.10 to $5.45 per share.

Wal-Mart Stores, Inc. (WMT)

Wal-Mart Stores, Inc. (NYSE:WMT) was but one of many companies in the retail landscape to lower their estimates in recent weeks, with Lowe’s Companies, Inc. (NYSE:LOW), Fred’s, Inc. (NASDAQ:FRED), and Dicks Sporting Goods Inc (NYSE:DKS) being just a few of the others.

Speaking to Bloomberg this morning, Janney Montgomery Scott retail analyst David Strasser attributes the broad weakness in the retail sector to a discriminating consumer who’s increasingly making purchases online out of necessity as much as convenience.

“[...] Earlier in the year, as analysts, we all have this great opportunity for hope, and then reality bites; and I think that’s kind of what we’re all dealing with, it’s reality versus hope. It’s just a very tough consumer out there, and this spending on the e-commerce side of the business, it’s just reality [...],” he said.

Strasser sees the necessity of investing in e-commerce as a good thing for Wal-Mart Stores, Inc. (NYSE:WMT), while admitting that those sales are likely lower margin than in-store sales, and slightly contributing to the overall stagnant revenue.

 “I think they (big-box retailers) all have the opportunity to bounce back. Wal-Mart did say that dot-com revenue was up 24%. Granted, it’s off a very small number, but you know, there’s a shift going on and unfortunately at the moment because of the spending, transparency and everything, that dot-com sale is likely a less profitable sale than an in-store sale [...],” the analyst said.

Strasser did praise Wal-Mart Stores, Inc. (NYSE:WMT) for that investment, and says they are in the process of getting ahead of the curve in that regard, while competitors like Target Corporation (NYSE:TGT) lag behind. He predicts those companies who don’t properly invest in e-commerce do so at their own peril for the sake of short term numbers.

Disclosure: none

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