RETAIL STOCK OUTLOOK: August Sales Are Above Expectations
08:01am EDT 5-Sep-97 DLJ Securities (Gary Balter)
WAL-MART (WMT: $38 1/16)#
Rating: Market Performance
EPS Estimates 1/97A 1/98E 1/99E P/E 1/98E 1/99E
$1.33 $1.53 $1.71 24.9x 22.3x
Wal-Mart reported strong comp increases from both its discount stores (up
7.7%) and Sam's Clubs (up 5.0%) for the month of August. These numbers
were among the most impressive of all the retailers. Discount Stores and
Supercenters remain to show consistent sales growth, and it appears that
Sam is perhaps turning the corner towards better results. In the second
quarter, WMT's inventories were down and pricing continued to remain
stable, as the consumer appeared to have more money and was more willing
spend it. Because WMT is keeping tighter inventories, the stores look
crisper with an overall better presentation which is translating into
better sales. Better sales and tighter inventories allow Wal-Mart to be
more competitive on price without affecting gross margins. We continue to
view WMT as a solid core holding. While it does not offer the growth
potential of some of our other recommendations, it should continue to be
It is most likely on its way to $40.
The company is in an excellent position going into the last two quarters
with sales and margin momentum and tighter inventories, but two issues keep
us from raising our estimates. One, on September 1st, the minimum wage was
raised by $0.30, costing the company at least one cent in earnings this
year and probably two to three cents next year. This is partially offset
because sales should be slightly higher as many of its customers will be
impacted by this increase and should have more to spend. Two, the company
will not benefit from LIFO credit as it did last year, which should cost
the company almost another penny in EPS this year.
For the month of August, Wal-Mart reported a total company comp sales
increase of 7.1%. This was essentially on plan as back-to-school,
softlines, and seasonal goods generated 12.6% growth in total sales. By
division, the discount stores had same store sales rise 7.7% due to strong
demand in the softgoods, consumable, and seasonal lines. Discount stores
posted strong results in the beginning of the month as electronics,
domestics, sporting goods, home furnishings, and HBA goods sold well.
Sam's Club came in above plan with 5% comps with especially strong results
in the first half of the month and solid sales from its fresh produce,
apparel, and consumer electronics categories. The Pace units had the best
comp gains, while Atlanta stores had strong double digit growth.
Membership renewal rates rose this month, while initiatives to improve
inventory positions and enhance merchandising continued to meet with
success. Internationally, Canada, Puerto Rico, and Mexico all had good
sales results. Wal-Mart completed the tender offer for Cifra shares this
month and plans on closing the transaction on September 8. Management
expects September comp increases to be 5-7% for the discount stores and in
the low single digits for the Clubs. |
