Wal-Mart bloodied but unbowed in Wall St. bout - Taking Stock - Column

Discount Store News, May 3, 1993 by Arthur Markowitz

Can you believe it: Wall Street dumping on Wal-Mart? The stock price has plunged about 20% from its high of $34 in early March. Security analysts have offered several explanations for the drop, none of which are very satisfactory. Perhaps the best reason is the belief that Wal-Mart can't continue to meet the high expectations its past retailing performance has created.

Some others: Wal-Mart has projected same store sales growing only 7% to 8%, compared to the over 10% rate of the past eight years. The discounter will be severely impacted by any new federal health care program that mandates company funding of coverage for part-time employees, who now aren't included in its health plan. Sam's Club has become a mature operation--same club volume is either flat or down--in what is fast becoming a mature membership warehouse industry. The move into food retailing through the Wal-Mart Supercenter venture faces sharper competition from supermarkets--already low cost retailers--than the discounter ran into from other chains as it expanded across the country.

Overlooked are some basic facts. Wal-Mart's sales and profit base is huge enough to ride out any negative scenario imagined by analysts. Low sales projections still result in more volume and profits than the highest estimates for other retailers. Potential difficulties like new health care costs and the maturing of the club industry won't hurt Wal-Mart as much as they will weaker retailers who can't absorb the blows. Wal-Mart has an advantage in the looming supercenter supermarket battle: profits from general merchandise sales that food retailers can draw on.

There may be reasons to be down on Wal-Mart as a stock buy, but the explanations so far aren't good ones. If you know someone who wants to sell Wal-Mart stock, take it and then offer him the Brooklyn Bridge.