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Walmart Cuts Orders, Raises Concerns

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According media reports, retail giant Wal-Mart Stores Inc. (WMT - Free Report) is struggling hard to destock its inventory and thus cutting new orders to its suppliers. Reportedly, the company is slashing product orders for the next two quarters of fiscal 2013. Walmart however has denied the reports and stated that the company places orders as per its requirements and is not struggling with its inventory.

Investors, on their part, continue to remain skeptical of this Zacks Rank #4 company as it has been posting declining same-store sales for the past few months. In the recently concluded second quarter fiscal 2014, Walmart posted softer-than-expected sales and missed the Zacks Consensus Estimate by 1.8%. This was on top of sluggish results announced in the first quarter.

U.S. same-store sales in the second quarter declined 0.3% in contrast to 2.2% growth in the prior-year quarter and missed the guidance range of flat to 2% increase. Weak consumer spending environment and lower-than-expected inflation hurt comps in the quarter.

Walmart’s inventory jumped 6.9% in the second quarter due to softer-than-anticipated sales trends, a delayed summer and timing shifts.

Walmart also lowered its sales guidance for fiscal 2014, signaling weak sales in the upcoming quarters. The company sharply lowered its net sales growth guidance from a range of 5%-6% to a range of 2%-3% due to weaker-than-expected performance in the first half.

Moreover, Walmart warned of a challenging sales environment in the second half, which together with currency headwinds could hurt second half top line growth. The company expects the gloomy consumer spending environment to continue globally for some more time. The economic strains in the U.S. and abroad are likely to pressurize its low-income shoppers for the rest of the year.

Walmart also lowered its earnings expectations from a range of $5.20 to $5.40 to $5.10 and $5.30 per share. For the third quarter of fiscal 2014, Walmart expects U.S. comp sales to be relatively flat, much lower than last year quarter’s growth of 1.5%.

We believe that a cautious consumer spending environment might impact the upcoming holiday season, which helps retailers to derive majority of their revenues for the year. Walmart is geared up to turn around its sluggish sales this holiday season and has unveiled plans to hire 55,000 seasonal employees and give more hours to thousands of other workers.

Other retailers that are better placed and worth considering include Dollar General Corp (DG - Free Report) , Ross Stores Inc (ROST - Free Report) and Etablissements Delhaize Frer , all of which hold a Zacks Rank #2 (Buy).

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