Wal-Mart Stores Suffers Through Cold December

The best performer of 2008 has taken a beating so far in 2009.

On Jan. 21 Wal-Mart Stores Inc., the darling of the Dow for the past 12 months, was downgraded by Credit Suisse analyst Michael Exstein.

Exstein’s downgrade from “outperform” to “neutral” sent shares tumbling 2.4 percent to $49.14 on a day the overall index rose 279 points.

That was Wal-Mart’s lowest price since closing down nearly $5 at $49.83 on Oct. 15, when it got sucked down with a broad-based sell-off that sliced 553 points off the Dow.

Wal-Mart’s shares rebounded immediately as it was still seen as the best bet in the market, regaining the entire loss on Oct. 16.

The Bentonville-based retailer was best positioned to take advantage of an economic downturn with its lean model, low-price credibility and newly remodeled stores, but has been hit with several blows in the last few weeks:

• The strengthening dollar. Decreasing global demand coupled with the dollar’s rally has hammered international numbers, where sales are still rising but well below previously steady double-digit rates. In December, Wal-Mart took a nearly 19-percentage point markdown in international sales because of the dollar’s surge. Chief financial officer Tom Schoewe estimated these costs to its earnings in the fourth quarter (Oct.-Jan.) at as much as 6 cents per share in November.

• Lawsuit settlements. In December, Wal-Mart announced it will pay no less than $352 million and no more than $640 million to settle dozens of wage class action suits around the country. Again, the cost per share is estimated at 6 cents per share in the fourth quarter.

• The weather. Consumers weren’t exactly eager to hit the stores in any case this holiday season, and in some parts of the country they couldn’t go even if they wanted. The final holiday shopping weekend saw some of the worst weather in December, further hampering sale numbers.

• The economy. A bad economy is historically good for Wal-Mart, but with December sales numbers up just 1.7 percent (excluding fuel), it is clear that even slashing prices on flat screens and offering the Apple iPhone aren’t enough to pry away discretionary dollars.

Sam’s Club in particular suffered from soft sales, posting just a 0.1 percent increase in same store sales (excluding fuel) during December. Including fuel, the decline in gas prices resulted in a 3.2 percent decline for Sam’s in same-store sales.

All told, Wal-Mart has gone from an original earnings guidance for the fourth quarter of as high as $1.13 per share to its current estimate of 91 cents to 94 cents per share.

On the high end of estimates, that’s a decline of 16.8 percent, which nearly matches the 15.2 percent fall in Wal-Mart’s share price since beating analyst estimates for November sales.