Pages

Thursday, February 21, 2013

Wal-Mart ... Sales are Tough Sledding ... Dividend Increased by 18%

The U.S. economy is soft, jobs are tough, gasoline prices are rising and the payroll tax burden has increased. Lots of "headwinds" out there for companies like Wal-Mart.

Yet Wal-Mart also announced an 18% increase in its annual dividend today. It has increased its dividend each year since 1974.

Accordingly, the yield is now over 2.5% compared to a yield on 10 year government bonds of roughly 2%.

Its shares are up more than 2% today at ~$71.

And by the way, Wal-mart's earnings are expected to grow again this year, as they seem to do every year, thus providing a solid backdrop for future share price appreciation and continuing annual dividend increases. Its annual sales are approaching $500 billion. What's not to like for long term investors?

Wal-Mart Expects Flat Sales This Quarter says this about the company's results and prospects:

"The world's largest retailer forecast flat same-store sales for its U.S. division in the current quarter, reflecting the strain its customers are under. Wal-Mart's core customer generally has a low income and is grappling with higher payroll taxes, rising gasoline prices and delayed income-tax refunds. The latter was in large part why February started out sluggishly, Wal-Mart U.S. Chief Executive Bill Simon said on a conference call. At this time last year, Wal-Mart had cashed $4 billion in tax refund and refund anticipation checks, Mr. Simon said. Currently it has cashed less than half of that, or $1.7 billion. Some of that money is typically earmarked around Super Bowl time for television sets. Now, the retailer doesn't know how the money will be spent. As a result, Wal-Mart is changing its merchandise a bit, going with smaller packaging and less expensive products, Mr. Simon said.

Regarding the payroll tax increase, "Customers know about it and are adjusting to it," Chief Financial Officer Charles Holley said. "It will become clearer as we move later into the year."

Business is perking up a bit at the retailer's largest unit. "We began seeing increased tax-refund-check activity last week in our stores," Mr. Simon said. "This resulted in a more normalized sales pattern for this time of the year."

Still, Wal-Mart remains challenged. "Jobs remain the top of the list and gas prices are making their way up," Mr. Simon said. . . .

As for Wal-Mart's results, "It's tough out there; the consumer is not spending," said Brian Yarbrough, retail analyst at Edward Jones. "So Wal-Mart has it tough, if not even tougher, than other retailers because their customers are low-income."

Wal-Mart forecast current-quarter earnings of $1.11 to $1.16 a share and estimated fiscal 2014 earnings at $5.20 to $5.40 a share. Analysts surveyed by Thomson Reuters expect $1.18 and $5.37, respectively. . . .

Wal-Mart also announced last month it was pushing further into the eye-care market by selling contact lenses online and by phone, and said it planned to launch its own private Equate brand of contact lenses in February.

On Thursday, the company said its board raised its annual dividend by 18% to $1.88 from $1.59, marking one of the largest increases in its history. Wal-Mart has increased its dividend every year since 1974. . . .

"We know there are challenges ahead, but we believe our strong financial position, along with our [everyday low cost] and [everyday low price] operating model, will continue to produce strong sales and returns for our shareholders," Mr. Holley said. . . .

For the current quarter, Wal-Mart said it expects flat U.S. same-store sales as rising fuel prices, changes in inflation and the payroll tax increase have slowed sales in the first few weeks of this year."

Summing Up

To repeat, times are tough.

That said, Wal-Mart is an extremely well managed company with a solid past and a bright future as well.

When the economy gathers steam down the road, which it will, Wal-Mart is well poisitioned to participate in that growth. 

In the meantime, it will continue to do well despite the difficult times ahead for the world's economies.

Again, what's not to like about Wal-Mart?

Thanks. Bob.

No comments:

Post a Comment