Wal-Mart Stores, Inc. WMT reported that it will eliminate about 1000 jobs this month, mostly in the human resources department, as the company is struggling with rising expenses. This move is in sync with the retail giant’s efforts to streamline its stores and make them more efficient.
As per The Wall Street Journal, Wal-Mart has been cutting down its operations to curb rising costs, as a result of increasing e-commerce spending and rising wages for employees.
In Sep 2016, Wal-Mart announced that it will cut about 7,000 back-office jobs, mostly in accounting and invoicing positions at its U.S. stores. The announcement was part of the company’s headcount reduction program announced in Jun 2016 for the West Coast. Wal-Mart, the country's largest private-sector employer, had said that it would cut back-office jobs at each of its 500 stores mostly in West of Colorado.
Last week, another retailer Macy’s Inc. M announced that it will cut about 6,200 jobs and close down roughly 100 stores due to sluggish holiday sales.
We note that Bentonville, AR-based Wal-Mart, holding a Zacks Rank #4 (Sell), has been grappling with near-term headwinds. Increased competition from traditional and online players and slowdown in international operations along with a strong dollar are hindering sales. Additionally, Wal-Mart is making huge investments in e-commerce initiatives to compete with the biggest online retailer Amazon.com, Inc. AMZN. After acquiring U.S.-based e-commerce company Jet.com last year, Wal-Mart announced the acquisition of ShoeBuy.com for $70 million last week. The deal will help Wal-Mart’s Jet challenge Zappos.com, Amazon’s footwear site.
Wal-Mart has also pledged to invest $2.7 billion on raising employees’ wages and provide them with additional training in fiscal 2017. Under the initiative, the company had increased its minimum wage to $9 an hour in Apr 2015, and to $10 per hour in Feb 2016. The initiative of paying higher wages is expected to help reduce turnover and increase retention. The company will also improve its customer service, which will encourage shoppers to spend more. However, it will further raise the expense burden on the retailer. Higher labor costs, along with the company’s efforts to overhaul its stores and invest in its online operations, will weigh on earnings.
The industry-wide weakness in the grocery/supermarket business is impacting Wal-Mart’s operations. The industry is grappling with food deflation, stiff competition, aggressive promotional environment and waning store traffic. These headwinds have largely impacted major food grocers like Wal-Mart, The Kroger Co., Whole Foods Market, Inc., SuperValu, and Sprouts Farmers Market.
Despite prevailing headwinds, it is encouraging to note that the company is making efforts to understand the evolving needs of its customers to regain their confidence, and thus boost sales.
Wal-Mart continues to impress investors with positive comps at Wal-Mart U.S. for nine successive quarters. In the last reported third-quarter fiscal 2017, Wal-Mart U.S. comp sales improved 1.2%, buoyed by a 0.7% increase in traffic. Moreover, traffic improved for the eighth consecutive quarter, owing to the company’s efforts to modernize its stores for higher footfall. Traffic also increased due to an improvement in consumer spending.
In fact, the stock has exhibited a bullish run on the index since the past one year. We note that in the said period the stock has recorded growth of 7.3% and outperformed the Zacks categorized Retail-Supermarkets industry, which showcased improvement of just 4.4%. We believe there still much value left in the stock, which is quite evident from its Value score of ‘A’, Growth score of ‘B’, Momentum score of ‘B’ and VGM Score of “A”.
What further makes us optimistic about its performance in the near term is its low beta of 0.10 and long-term earnings growth rate of 5.3%. Further, the retailer has delivered positive earnings surprises in the past five consecutive quarters.
Stock to Consider
A better-ranked stock in the broader retail sector includes Best Buy, Inc. BBY, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy has an expected earnings growth rate of 11.87%.
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