Wall Street waits out personnel, policy changes at Wal-Mart

by The City Wire staff ([email protected]) 92 views 

Wal-Mart Stores Inc., one of the most widely held public companies in the world, has been placed on sale by Wall Street in recent months. Management restructuring, significant investments in e-commerce and employee wages, sluggish profits, and slower growth predictions are the primary reasons for uncertainty about the retailer’s value.

The stock price has traded in the $63 to $67 range during the past two months, well off its 52-week high of nearly $91 per share hit in early January. Year-to-date Wal-Mart shares have tumbled 23% which is a market cap loss in excess of $82.3 billion based on Wednesday’s (Oct. 7) closing price of $66.36. 

Budd Bugatch, analyst with Raymond James & Associates, recently wrote that Wall Street has not been impressed with the ongoing changes announced a Wal-Mart in recent months.Raymond James reaffirmed its “strong buy” rating, but shaved a couple cents off of their earnings guidance for Wal-Mart in the back half of the year, citing foreign exchange risk and lower fuel prices.

In the Oct. 7 note to investors, Bugatch said the 450 recent Wal-Mart home office layoffs announced Friday (Oct. 2) were part of the “reality that every human-run organization needs to occasionally step back and reassess how it’s structured and how it allocates its people resources.”

Bugatch took the retailer’s internal memo at face value. But others are skeptical, with several former Wal-Mart insiders and suppliers believing the corporate cuts would be closer to 5% of the retailer’s Northwest Arkansas corporate workforce of just under 19,000. This assumption was based on industry trends and what it would take to make a material financial impact for a company the size of Wal-Mart.

Competitor Target recently purged 1,700 corporate jobs and announced another 1,400 vacancies would not be filled. The Target cutbacks garnered this retailer $2 billion of savings annually. Whole Foods also announced in recent days it would layoff 1,500 workers over the next two months and slow its pace of expansion as it also works to lower prices and invest in technology upgrades.

Greg Hitt, vice president of corporate communications at Wal-Mart, said retirements were not included in the 450 number. He also said the retailer did not place a freeze any of its open positions prior to the layoff. Marilee Mcinnnis, corporate spokeswoman for Walmart International, told The City Wire that the “international business was not affected by this Home Office restructuring.”

Some retail insiders believe more cuts including those on the international stage will come in the near future, particularly if the retailer’s profits dip again like the 15% decline reported in the recent quarter. While no one minimizes the personal impact to any of those recently laid off, analysts do look at the potential financial savings related to the smaller workforce. 

Some Wall Street experts do not think 450 fewer corporate jobs at Wal-Mart will be enough to move the profit needle given the retailer’s gigantic size.

Seeking Alpha contributor known as the Curious Observer, who formerly worked at a Wal-Mart supplier, sees the 2% headcount reduction at Wal-Mart as “too little, too late” and only “a token cut” at the hope of making a material financial difference. Assuming that each Bentonville job costs about $100,000, which is reasonable because corporate jobs are generally pegged to national salaries rather than the lower regional salaries in Bentonville, the latest layoffs would result in savings of about $45 million per year, or about $11.25 million per quarter, according to Seeking Alpha.

The selling, general and administrative expenses (SG&A) for Wal-Mart in its most recent federal filing was $24.104 billion. The 450 jobs would shave about 0.19% from the company’s SG&A. The deeper cuts at Target are projected to have a 2.2% lower impact on that retailer’s SG&A.

Brian Yarbrough, retail analyst with Edward Jones, said sustaining long-term investor confidence takes more than workforce cuts. He said while sometimes a stock can react favorably to large workforce cuts, the uptick is usually short lived in terms of investor confidence with are largely driven by consistent earnings growth.

Analysts are likely to ask Wal-Mart execs during an Oct. 14 meeting in New York about the recent layoffs and if more are possible if profits don’t improve.