The top seven executives at Wal-Mart Stores Inc. together have more than 110 million reasons to manage the retailer’s business in a manner that meets with Wall Street approval.
For every $1 the Wal-Mart shares increase in price, Wal-Mart Stores CEO Doug McMillon personally benefits by more than $707,000 in his own stock holdings of the company. Likewise, that’s the loss when the stock moves the other way.
Although McMillon and the retailer’s management team benefit exponentially when Wall Street favors the stock, McMillon told analysts in June 2015 that short-term approval from Wall Street was not his first concern. He said decisions to raise worker pay and invest in e-commerce fulfillment would take time to reap rewards and the company’s board of directors had given him ample leeway to invest for the future, regardless of how Wall Street viewed this strategy.
During McMillon’s two year run as CEO there have been more losses than gains in his stock portfolio value as well as the top six executives who report to him. Wal-Mart’s stock price has declined more than 7% in the past two years, as Wall Street has largely taken a bearish view. Meanwhile, the overall Dow Jones Industrial Average rose 6.56% and the broader S&P 500 gained 10.89% in the same two years.
Five brokerage firms downgraded Wal-Mart shares between November 2014 and October 2015. Four of the downgrades were to a neutral position, indicating Wall Street has Wal-Mart in a lukewarm position at best given its “hold” recommendation by more than 60% of firms following the retailer. Two firms rated it a “buy” and two firms recommended the shares be sold back in late 2014.
When the retail giant closed its book of business for fiscal 2016 its top seven executives held more than 1.64 million shares of Wal-Mart stock in their personal and retirement accounts, according to a recent filing with the federal Securities and Exchange Commission. Those shares had a market value of $109.238 million as of Friday (Jan. 29) which was the last day of business for the company’s fiscal year.
Following are the executive stock holdings, listed according to share value, according to the federal filing.
• Doug McMillon, Wal-Mart Stores CEO
707,590 shares valued at $46.955 million
• Rosalind Brewer, CEO Sam’s Club
242,679 shares valued at $16.104 million
• Neil Ashe, CEO global e-commerce
241,915 shares valued at $16.053 million
• David Cheesewright, CEO Walmart International
131,227 shares valued at $8.708 million
• Rollin Ford, chief administrative officer
129,095 shares valued at $8.566 million
• Greg Foran, CEO Walmart U.S.
88,273 shares valued at $5.857 million
• Brett Biggs, chief financial officer
61,559 shares valued at $4.085 million
Each of these executives receive shares and options to purchase shares in the form of deferred annual compensation which is largely based on performance. In other words, the better the retailer performs, the more the executives can earn in shares and other forms of deferred compensation.
McMillon told analysts in October that earnings will be lower than historic norms for the next two to three years as the retailer focuses on higher wages costing $1.5 billion more and another $2 billion it plans to spend on its global e-commerce business. He said the investments were crucial if Wal-Mart expects to win in the future of retail.
“Our investments in our people, our stores and our digital capabilities and e-commerce business are the right ones. We will be the first to build a seamless customer experience at scale to save our customers not only money but also time,” McMillon told analysts in October 2015.
Wall Street didn’t see it that way. The share price tumbled more than 10% immediately after Wal-Mart reduced its earnings guidance through 2017. The shares traded between $58 and $60 per share through the end of 2015.
Analysts such as Ben Bienvenu of Stephens Inc., and Brian Yarborough at Edward D. Jones took a wait and see approach to Wal-Mart shares which have recently begun to rebound amid overall market volatility.
Olive Chen, an analyst with Cowen & Company, also remains on the sidelines while noting his firm’s research shows happier Walmart customers, cleaner stores, upgraded staffing and expansion in its bricks and clicks e-commerce business. Chen said in November the upside potential he saw in the stock price was at $66. That is now being raised. Wal-Mart shares were trading above $67 on Monday (Feb. 1,) which is also the first day of the company’s new year.
Chen applauded Wal-Mart management for resetting the bar higher in October. He said the idea was the right one, but there would be pain in the short-term. No one believed the short-term would be three months. As plummeting oil prices and other global concerns hammered U.S. equity markets in early 2016, Wal-Mart shares have become a safer haven for speculators and longer term investors.
The timing of the rebound also coincides with the retailer’s plans to aggressively buy back roughly $20 billion in outstanding stock over the next two years. The Wal-Mart share price is up 10.5% year-to-date while the Dow Jones Industrial Average has lost 5.37% and the S&P 500 is down 4.83%.
Perhaps the icing on the cake for Wal-Mart investors is the consistent dividend and the retailer’s commitment to increasing it annually over the past 42 years. At $1.96 per share paid annually, the dividend yield at today’s price of $67.80 equals 2.95%, one of the higher dividends paid among retail competitors.
Of course, the higher dividend is beneficial to the Walton Family, the largest holders of the retailer’s shares.