EC HH Wal-Mart Just Isn't A Growth Company Any More

Data from S&P Compustat via and reflects Compustat standardization protocols; ratios based on Portfolio123 protocols. TTM = trailing 12 months

Because the cost of debt has been and still is so shockingly low and because there is no single correct way to organize a capital structure, we can’t hyper-analyze differences (even something like liquidity can be deemed excessive in some cases). All we look for on a table like this is red flags signaling one extreme or another. The only flashing light I see here is in the smaller group, where one or a few firms are having problems and pulling the average down to danger levels. As to WMT, it’s OK to go back to sleep.

So let’s get back to the question posed by the heading to this section: Does WMT’s get-tough-with-vendors stance make sense?

Knowing as I do the horrors that befall stockholders when companies miss guidance, or don’t guide as high as the Street wants is to guide, and understanding the traumas likely for company managers dreaming of bonuses and fearing layoffs if they don’t deliver on internal targets, it’s hard for me to dis anyone at WMT for trying to squeeze more numbers out of its operation than are being squeezing today.

But in the grand scheme of things, the extra $1 billion in revenue WMT projects is less than a zit on an elephant’s rear end even if for one or more WMT managers, it may be their entire careers. And with WMT employees looking to get their hands on a few more of those numbers than they’ve gotten in the past, I can empathize with WMT managers feeling pressed to recapture those pounds of flesh by looking to others from who they can be extracted. (Congratulations suppliers, you’re elected!)

How Investors Should React

Many equity investors take it for granted that growth is a must. If we can get a nice yield, or find an unduly low stock valuation, great, but companies have to grow.

Growth really is desirable. It’s key to what separates stocks from fixed income or even preferred stock. Realistically, though and drilling down to the level of an individual company, we cannot expect each and every business to always grow. The best buggy whip manufacturer is still a buggy whip manufacturer and no financial theory in the world can make it grow. It can exit the buggy whip business, start or acquire a virtual-reality gizmo company, rename itself BW Virtual Reality Co. (the BW being a way to pay homage to its buggy ship heritage) and grow that way. But I don’t think this is what WMT has in mind and even if it did, I’m not sure investors would accept such a strategy from that team of managers and executives.

The basic reality for WMT is that it is not a growth company anymore and no amount of stomping on employees or now suppliers is going to change that. The 0.21% pop to revenues WMT projects from OTIF certainly won’t do it, and Tables 1 through 4 give little reason to expect such nickel-and-dime nonsense to somehow or other put things right for WMT. Its business is what it is.

Moreover, WMT is already right – as long as we understand and accept what WMT is and refrain from pining away over what it’s not. It’s not AMZN. Different era. Different business model. Different skill set. This isn’t called a failure on WMT’s part. Instead, we call it life, or the human experience.

Consider the flow or funds data in Table 5.

Table 5 (in $ mill.)

  Key Inflows: Important Outflows Surplus
Cash Fr. Oper. Dividend CapEx Stock Buyback  Debt Reduction
2011 23,643 4,437 12,699 14,776 -6,953 1,316
2012 24,255 5,048 13,510 6,298 -111 -490
2013 25,591 5,361 12,898 7,600 1,267 -1,535
2014 23,257 6,139 13,115 6,683 -2,104 -576
2015 28,564 6,185 12,174 1,105 -1,270 10,370
2016 27,389 6,294 11,477 4,112 4,393 1,113
2017 31,530 6,216 10,616 8,298 1,918 4.482
View single page >> |

Disclosure: None.

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Cyrus Dariani 2 years ago Member's comment

I do not believe Walmart will be able to grow much further. They already have a negative stigma surrounding them with employee treatment. On the other hand, Amazon seems to have a much more positive stigma around it,leading me to believe it will eventually outgrow Walmart substantially

Bill Johnson 2 years ago Member's comment

#Walmart is horrible to both its suppliers and its employees. But are #Amazon and other companies really that much better? With the exception of a standout like Wegmans, any company that wields that much clout is going to use it. $WMT $AMZN

Angry Old Lady 2 years ago Member's comment

While I know #Walmart ($WMT) and #Amazon ($AMZN) treat its suppliers and employees poorly, I also know that means greater savings for me, so I'm okay with it. No one is forced to sell to, or work for, these companies. And no one is forced to shop there. I see no issues all around.