The world’s biggest retailer reports a solid quarterly profit then mentions its lowering its forecast for next quarter. And then, like clockwork, investors began to panic and sold off Wal-Mart (WMT) stock.
Deutsche Bank believes this is foolish. Despite missing comp guidance, DB says that Wal-Mart remains “well positioned” for growth due to the fact that they destroy other retailers’ prices.
Here’s a breakdown of where Wal-Mart is doing well and where it’s hurting:
- Grocery comps were flat in the quarter given the deflationary environment;
- Health and wellness comps were “very solid,” with pharmacy outperforming competitors and maintenance and wellness categories generating consistently strong comps;
- The Great Value brand was rolled out in the food and consumable areas and are generating mid-single digit comps (versus the flat grocery comp); Hardline and seasonal were soft given reduced discretionary spending on decorative items. However, the snowy weather drove strong comps in automotive and seasonal hardware;
- Home saw strength in eating and entertaining at home items, with discretionary categories remaining soft;
- Entertainment was weak on deflation, but toys reported strong sales on key items over the holidays; and, Apparel performance was disappointing, though basics performed well and apparel inventory is clean throughout the chain.
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