Analysts Weigh In On Annual Walmart Shareholders Meeting

It’s that time of year again. Each spring, shareholders for Wal-Mart Stores Inc. flood Northwest Arkansas for the publicly traded company’s annual meeting.

 The event draws 10,000-plus visitors. Corporate superstars will be there in the audience and on stage at Bud Walton Arena in Fayetteville, A-list celebrities will perform, and investors will vote on items regarding the future of the world’s largest retailer.

However, analysts say anyone expecting to see significant direction change as a result of the June 5 meeting will likely be disappointed.

Joe Feldman, senior managing director at New York City-based Telsey Advisory Group, predicts the company will announce a continued focus on technology and on its smaller-format stores, the Walmart Neighborhood Markets. Feldman also said unique concepts like the Walmart Pickup grocery model will stay at the forefront.

As far as confronting the issues, Feldman said currency fluctuations will be a major focus at the meeting, as a stronger dollar recently hurt the company’s profits.

Scott Mushkin, managing director and senior retail analyst at Wolfe Research, also of New York City, forecasts that the way Walmart treats its employees also will be a central issue.

“Associate engagement is going to be a hot topic, as is the wage raise,” he said.

In February, Walmart made headlines when it announced a salary hike for its employees to a minimum of $10 per hour by February 2016, prompting other retailers to adopt similar initiatives. 

However, there are still campaigns pushing Walmart for more reform. And in the midst of ongoing controversy and public relations issues — which Mushkin concedes are often inevitable for a company the size of Walmart — he argues it would be good to see a tone change at the annual meeting.

“It’s always sort of a rah-rah,” he said. “I would love to see the annual shareholders meeting become less of a pep rally and take on more of a town hall approach, where they really sit down and seek input from their shareholders.” 

But Mushkin does not believe that will happen. With three relatives of Sam Walton on the board of directors and with the family owning more than half the company’s shares, Mushkin said the Waltons run the business.

“They’re going to do what they think is best for the company, and what honors their father’s or their grandfather’s legacy,” he said.

 

Proxy Items

As in previous years, shareholders will vote during the meeting whether to re-elect the company’s board of directors. There are 15 members, 10 of which are independent from Walmart.

The shareholders also will vote on a non-binding approval of executive compensation, on the company’s stock incentive plan, and the hiring of EY as the company’s independent accountants for FY2016.

Little attention will likely be given to five shareholders’ proposals, all of which the board recommended shareholders vote against. The proposals mostly seek more shareholder control, pointing to underperformance of the company and costly scandals in recent years. For example, Walmart spent $576 million on corruption cases in Mexico, China, Indiana and Brazil, according to its third-quarter 10-Q filing with the U.S. Securities and Exchange Commission for FY2015.

One proposal, citing a CFA Institute study showing proxy access as beneficial, asks that Walmart give shareholders some say in board nominations. But a statement from the board of directors in opposition of the measure states a more politicized process could interfere with and undermine the efforts of three independent board members who handle nominations.

Another shareholder proposal calls for an independent board chair, but the board countered by pointing to its decisions to separate the roles of chairman and CEO and to appoint an independent director, also giving a nod to current chair Rob Walton’s significant ownership stake and the institutional knowledge earned through 40 years of experience.

Shareholders also will vote either for or against more transparency on loss of executive pay for misconduct. On this topic, the board says SEC rules requiring reporting on pay for its top executives are adequate and extending it to all senior executives could result in the leak of potentially sensitive information.

The board also deemed unnecessary a shareholder proposal on expanded incentive compensation reporting, because of changes made in 2015, and challenged a request for separate reporting on greenhouse gas emissions from maritime shipping. The board contended that the company is a recognized corporate leader by CDP in the area of reducing the amount of its direct greenhouse gas emissions.

 

Reasonable Requests

The bottom line? “Shareholders are asking for more accountability and transparency, and their requests are reasonable,” said Paula Rosenblum, partner at Retail Systems Research in Miami. “Walmart has not done as well as it could.”

The latest financial report appears to support this assertion.

Walmart reported minimal growth in same-store sales and a drop in profit for the quarter that ended April 30.

Comparable-store sales rose 1.1 percent, and its overall revenue of $114.8 billion fell 0.1 percent from the same quarter last year.

In addition, the company saw an 8.3 percent drop in operating income, to $5.7 billion, and earnings per share fell to $1.03, from $1.10 in 2014.

Walmart attributes the shortcomings to a partial implementation of the wage hike it says will ultimately cost $1 billion and to currency fluctuations.

And while analysts agree those factors played a large role this quarter, some say Walmart is on a declining path.

To Mushkin, overinvestment in tech, abroad and in small-format stores is at the forefront of the company’s issues.

“Walmart is chasing a pie in the sky. It’s chasing Amazon, but Amazon Prime is not their core customer,” he said.

Both Mushkin and Rosenblum say the retail giant is “cannibalizing itself.”

Mushkin’s firm, Wolfe Research, on May 14 published a report outlining a severe direction change that it believes would turn things around for Walmart.

In it, analysts suggest the company sell off all foreign stores, except for those in the Americas, and curtail $2 billion per year in spending on e-commerce and Walmart Neighborhood Markets. 

The report recommends a refreshed focus on its supercenters, which they say are the heart of the business and offer the highest return on assets.

The first act of business would be to improve operations at some of its stores, “especially above the Mason-Dixon Line,” Mushkin said, where many stores are understaffed, out-of-stock, in poor condition and have a substantial staff morale problem.

“In Northwest Arkansas, the hometown of Walmart, it’s hard to see the issues that are so visible elsewhere,” he said.

 

McMillon’s Method

In the retailer’s annual report, president and CEO Doug McMillon addressed employee issues. “We’re investing in higher wages and increased training and development for our U.S. associates. We’ll also equip them with information and technology to facilitate greater customer service,” he wrote.

Rosenblum said, while Walmart has suffered from “tone deaf” leadership in the past, she notes some improvement under McMillon, who took on his current role in February 2014.

Claudia Mobley, founding director of the Center for Retailing Excellence at the Sam M. Walton College of Business at the University of Arkansas, believes McMillon, a Walton College alum, is steering the company in the right direction.

“Doug [McMillon] is really focused on getting back to basics,” she said. “Through his leadership, Walmart is focused on getting back to what brought them to the dance, and sometimes that means educating his own [employees].”

Mobley points to a fundamental principles of Walmart, offering “the right products at the right price.” She disagrees with an assertion from analysts like Mushkin that Walmart has lost its competitive advantage of price. To her, the company’s Savings Catcher app, which pays customers the difference if it finds a lower advertised price for an item they purchased at Walmart, proves the retailer’s price competitiveness.

Mobley also said that “Walmart knows it was a little late to the game,” on the technology front, but she believes the company sees that piece of its business as integral in its effort to attract young customers.

“Like any field, you are constantly working and trying to keep up. They’re willing to try different things. They’re not sitting on their butts,” she said.

In May, Walmart.com announced an unlimited shipping service that will compete with Amazon Prime.

And Feldman said Walmart will likely continue to make moves that show it is listening to its customers and the community.

“Walmart, sometimes as a bellwether, gets a bad rap,” Feldman said. “They do a lot of really good things for their employees, for the environment, and for the community. With a company that size there are always examples you can pick up, but they are good corporate citizens. It’s too bad they get beat up in the press.”