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Wal-Mart shares downgraded by William Blair

Wall Street investors backed off of Wal-Mart Stores Inc. on Tuesday, April 15, following a downgrade by Chicago-based William Blair. The stock price fell 50 cents to close at $76.88 per share. Wal-Mart was one of only two big box retailers losing ground against a day of gains for the Dow Jones Industrial Index and the broader market indices.


Mark Miller, analyst with Chicago-based William Blair, cut Wal-Mart’s rating to underperform (sell) on the heels of a strong retail sales report, the best month-to-month improvement since 2012 for the retail sector.
 Miller’s concerns for Wal-Mart involve core execution and customer experience down to the store level.


“Wal-Mart’s domestic comp-store sales are trailing broader retail sales growth, and same-store traffic is declining (domestically and across most international markets). Whatever the reasons, customer satisfaction at Wal-Mart is significantly lower than that of other retailers in our coverage,” Miller notes.


He also cites a deceleration in merchandising innovation which he believes is deflating sales gains.


“Specifically, we have observed a steady decline in the number of new product introductions over the past several years,” Miller notes.


Miller recognized the retailer’s expansion of smaller stores as a “prudent strategy” given the rising convenience demands from consumers. He said the cannibalization of trips to supercenters is inevitable and will likely weigh on capital over time.

On a bright note, Miller applauded Wal-Mart’s e-commerce exploits. He said the retailer also serves a large demographic that is less apt to shop online for grocery and perishables. 


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“However; we are concerned that Wal-Mart’s store base is ill positioned for a consumer that is increasingly buying individual items online, reducing the appeal of Wal-Mart Supercenters with wide assortment."

Miller reduced his annual earnings per share by a dime this year to $5.15.

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