13 November, 2008

Wal-Mart Optimistic on Economy as others slash outlooks

The clout and reputation of Wal-Mart (WMT) precedes it even in the most trying consumer and economic times. Not only is WMT the only component of the Dow to be in positive territory for the year it is one of those American bedrock companies that span the nation and its shopping consciousness.

With Wal-Mart reporting an almost 10% rise in year over year profit for the quarter it is becoming crystal clear that even a tight-wallet shopper needs the inexpensive wares provided by his or hers neighbourhood Sam's mega-store. Now not totally economy-proof, Wal-Mart was forced to make some forecasting concessions itself, however nothing in the drastic realm of Electronics retailer Best-Buy (BBY) from just a day ago.

Wal-Mart for the quarter earned $0.80/share ($0.77/share excluding items) compared to analyst expectations of $0.76/share. In the upcoming quarter Wal-Mart forecasts called for profit from $1.03-$1.07 per share, which came slightly below analysts average estimates of $1.11. However CEO Lee Scott's recorded comments of being "optimistic for the holidays" leads Investors to believe that the company banks on its pricing power and essential shopping wares as a way to flatten out the economic downturn.

Of course it is true that people will still have to buy all sorts of things! The positive for Wal-Mart is that it sells just about everything. As Best-Buy's economic comments put a damper on the future of electronic consumer spending, citing a "seismic" downturn of the consumer, no such epic troubles seem ahead for Wal-Mart stores across the country and abroad. Granted in trying times, shoppers on a whole may stall big-ticket item purchases but Wal-Mart's base of essential needs products and cost-effective middle-wares will likely attract shoppers who scale back from more boutique retailers.

While Wal-Mart may seem like one of those boring stocks, in this type of market boring is productive. A dividend yield of about 2% is sombering as other attractive companies being taken down by the stock market sell-off sit at yields in excess of 5-6%. The fact remains that Wal-Mart has been steady all year and will likely continue to be steady in the year to come.

Call it boring all you want, but in the down-turns its the tortoise that continues on less scathed.

Disclosure: Author is long BBY, holds no position in WMT

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