RETAIL STOCK OUTLOOK: Continue To Recommend Overweighting Retail Sto
07:48am EDT 10-Oct-97 DLJ Securities (Gary Balter)
WAL-MART (WMT: $35 3/8)#
Rating: Market Performance
EPS Estimates 1/97A 1/98E 1/99E P/E 1/98E 1/99E
$1.33 $1.53 $1.71 23.1x 20.7x
Comparable sales at Wal-Mart's discount stores increased 5.1%, on plan for
the month, while sales at the clubs grew 1.3%. The company notes that
earnings are in good shape as the company keeps inventories tight and
continues to rationalize expenses. Hardlines had good results along with
the more ancillary businesses, including pharmacy and vision centers. Like
most of the other retailers, WMT had weaker apparel sales.
Wal-Mart hosted a two day analyst meeting, detailing their growth strategy
for the next several years, unveiling the newest version of the Supercenter
and providing us with confidence in the company's ability to continue to
consistently produce 15% returns to its shareholders. We came away with
the sense that Wal-Mart should continue to be a core retail holding,
representing a stock with a reliable, albeit less-aggressive growth
profile.
If there was a single theme that pervaded the meetings, it was the
company's focus on return on investment at each and every level of the
company. CFO, John Menzer, has led a shift in the company's mission from
simply increasing sales to increasing sales while creating shareholder
value. Last year, Menzer spoke about focusing on returns and particularly
in relation to the balance sheet, but the divisional leaders were not as
convincing in their commitment and understanding of the objective. This
year, however, everyone seems focused on improving ROI, from the store
manager reducing store inventory to the real estate personnel seeking out
certain higher return alternatives as opposed to simply building new boxes.
Ultimately, the company's ROI focus should translate into 15% returns to
shareholders via 13% in earnings per share gains, 1% in dividend payments,
and 1% from the share buyback program. We reviewed some of the highlights
of the meeting in a note yesterday, most of which did not represent
anything significantly different than what we have seen and written about
in the last six months concerning the company. |
