Thursday, March 6, 2008

Attention Wal-Mart Shoppers!

Wal-Mart (WMT) reported what most analysts said were good numbers this morning. Our team looks at these numbers and visualizes a completely dIfFeReNt word than good. With our microscope in hand, here we go! Wal-Mart's same store sales rose around 3% for month ending February. The analysts cheered! Hip hip hoorah!! Hip hip hoorah!! One more time, Hip hip hoorah!! Now please exhale and finish this Psychology of the Call. If Wal-Mart's same store sales were to rise every month of the year at this alarming rate, Wal-Mart would experience 3% x 12 months= 36% growth! Wow! Sales were especially strong in gas, food, flat panel TV's, and video games. Are you getting an image of the average shopper? Lifestyle matters. Still cheering? Here's the skinny, or fat; you decide. In 2009 Wal-Mart's sales are estimated to be $405B and grow to $436B in 2010. This equates to 7.7% growth year over year (y/y) in sales. As noted above today's 3% sales growth in Feb would equate to 36% for the year, simply blowing out the estimates of a piddling 7.7%. And as you consider where the growth/sales are coming from, you visualize your ‘average’ shopper that drives sitting down, eats sitting down, watches TV sitting down, and plays video games sitting down. We don't cheer at that image of the Wal-Mart consumer. We believe the Arkansas retailer, on a financial metric growth of sales comparison, is doing spectacularly well. But we feel the issue is the Psychological component of what they sell, and not how much they sell. Americans may wave a red flag at the prospect of investing in an Arkansas based retailer which arguably could be based in Beijing! Our team believes there’s a lot more to a P/E ratio than strictly stock price divided by the bottom line, or earnings. So we’re not saying Hip hip hoorah and cheering like most analysts on the Street, whose current recommendations total 6 Strong Buys, 11 Buys, and 8 Holds. In fact, we wouldn't even fall into that "Hold" camp. That’s cheering from the Street. Jeering from us. Once again, thanks for understanding the Psychology of the Call.

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