Retail giant Wal-Mart struggled through most of fiscal 2014 as U.S. buyersspent cautiously even on their basic needs. As store traffic and consumer spending remained weak throughout the year, the retailer’s U.S. revenue per square feet declined by 0.4%.
However, the U.S. economy has shown some signs of recovery lately with promising growth in retail sales and improved employment data.
We believe that Wal-Mart’s Q1 fiscal 2015 results, scheduled to be released on May 15, will benefit from this trend. After being subdued by relentless weather and sluggish consumer spending, U.S. retail sales rebounded in February, recorded a significant gain in March and continued increasing in April.
Wal-Mart witnessed a steep decline in its international revenue per square feet last year primarily due to economic slowdown in Mexico, which is its largest market outside the U.S.
However, with the expected economic recovery and increased investments, the retailer is likely to perform better this year. Our price estimate for Wal-Mart stands at $79.30, which is slightly ahead of the market price.
After declining for two consecutive months, U.S. retail sales rebounded in February as the impact of extreme weather subsided and the jobless scenario improved. Early reports suggested that retail sales improved by 0.3% during the month with similar gains across most product categories.
However, the gain was later revised to 0.7%, which easily trumped economists expectation of 0.2% rise. Consumer confidence started recovering as unemployment benefits dropped to their lowest level in more than three months in early March.
Labor Department reported a fall of 9,000 in initial claims for unemployment benefits in the first week of March. Following a rebound in February, U.S. retail sales jumped 1.1% in March 2014, which was their biggest gain in more than 18 months.
It indicates that once the weather became suitable for store shopping, U.S. buyers weren’t too reluctant to spend. The job market continued improving as average job growth in February and March (195,000) was much better than what it was in the prior two months.
In fact, first time jobless benefits applications in early April were at their pre-rescession levels. According to a recent Bloomberg note, upcoming retail sales data for April will most probably show sustained growth in U.S. retail sales.
Since Wal-Mart accounts for more than 10% of the non-automotive spending in the U.S. and serves over 100 million customers every week, its sales largely depend on retail market conditions.
Hence, we expect the retailer’s U.S. sales to improve in the first quarter, which will be backed by aggressive expansion of its smaller stores.
Although Mexico’s retail sales have grown steadily for the past few years, they remained weak in 2013 due to low consumer confidence and an overall slowdown in the economy.
Mexico’s economy expanded by just 1.1% in 2013 on account of lower government spending, weak demand for exports and sluggish consumption. This marked the region’s slowest economic growth rate in the last four years.
Owing to Mexico’s weak economic environment and Wal-Mart’s continued expansion, the retailer’s comparable store sales in the region have declined by 2.2% on average for seven consecutive quarters.
In almost all of these quarterly results, Wal-Mart cited low store traffic as the primary reason for its comparable sales decline.
Although Mexico’s same-store sales increased by just 0.1% in 2013, due to the weak economic environment and natural calamities, it is expected to improve in 2014. ANTAD, Mexico’s biggest retail trade body, expects the country’s same-store sales to increase by 1.7% this year.
While Mexico’s economic growth was slow in 2013, its GDP is expected to grow by about 4% this year, backed by increased government spending and U.S. economic recovery. In addition to improving market conditions, Wal-Mart’s increased investments in the region might also help it perform better.
The retailer is investing more in remodeling and maintenance of its existing stores, rather than opening new outlets. Alongside, it is also investing a significant amount in its e-commerce channel.
This should help Wal-Mart improve its store productivity gradually, which has been a big issue in the past. However, we are eager to see if these investments have any noticeable influence over Wal-Mart’s results in the first quarter.
forbes.com
However, the U.S. economy has shown some signs of recovery lately with promising growth in retail sales and improved employment data.
We believe that Wal-Mart’s Q1 fiscal 2015 results, scheduled to be released on May 15, will benefit from this trend. After being subdued by relentless weather and sluggish consumer spending, U.S. retail sales rebounded in February, recorded a significant gain in March and continued increasing in April.
Wal-Mart witnessed a steep decline in its international revenue per square feet last year primarily due to economic slowdown in Mexico, which is its largest market outside the U.S.
However, with the expected economic recovery and increased investments, the retailer is likely to perform better this year. Our price estimate for Wal-Mart stands at $79.30, which is slightly ahead of the market price.
After declining for two consecutive months, U.S. retail sales rebounded in February as the impact of extreme weather subsided and the jobless scenario improved. Early reports suggested that retail sales improved by 0.3% during the month with similar gains across most product categories.
However, the gain was later revised to 0.7%, which easily trumped economists expectation of 0.2% rise. Consumer confidence started recovering as unemployment benefits dropped to their lowest level in more than three months in early March.
Labor Department reported a fall of 9,000 in initial claims for unemployment benefits in the first week of March. Following a rebound in February, U.S. retail sales jumped 1.1% in March 2014, which was their biggest gain in more than 18 months.
It indicates that once the weather became suitable for store shopping, U.S. buyers weren’t too reluctant to spend. The job market continued improving as average job growth in February and March (195,000) was much better than what it was in the prior two months.
In fact, first time jobless benefits applications in early April were at their pre-rescession levels. According to a recent Bloomberg note, upcoming retail sales data for April will most probably show sustained growth in U.S. retail sales.
Since Wal-Mart accounts for more than 10% of the non-automotive spending in the U.S. and serves over 100 million customers every week, its sales largely depend on retail market conditions.
Hence, we expect the retailer’s U.S. sales to improve in the first quarter, which will be backed by aggressive expansion of its smaller stores.
Although Mexico’s retail sales have grown steadily for the past few years, they remained weak in 2013 due to low consumer confidence and an overall slowdown in the economy.
Mexico’s economy expanded by just 1.1% in 2013 on account of lower government spending, weak demand for exports and sluggish consumption. This marked the region’s slowest economic growth rate in the last four years.
Owing to Mexico’s weak economic environment and Wal-Mart’s continued expansion, the retailer’s comparable store sales in the region have declined by 2.2% on average for seven consecutive quarters.
In almost all of these quarterly results, Wal-Mart cited low store traffic as the primary reason for its comparable sales decline.
Although Mexico’s same-store sales increased by just 0.1% in 2013, due to the weak economic environment and natural calamities, it is expected to improve in 2014. ANTAD, Mexico’s biggest retail trade body, expects the country’s same-store sales to increase by 1.7% this year.
While Mexico’s economic growth was slow in 2013, its GDP is expected to grow by about 4% this year, backed by increased government spending and U.S. economic recovery. In addition to improving market conditions, Wal-Mart’s increased investments in the region might also help it perform better.
The retailer is investing more in remodeling and maintenance of its existing stores, rather than opening new outlets. Alongside, it is also investing a significant amount in its e-commerce channel.
This should help Wal-Mart improve its store productivity gradually, which has been a big issue in the past. However, we are eager to see if these investments have any noticeable influence over Wal-Mart’s results in the first quarter.
forbes.com
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