Wal-Mart’s “total disaster” emails? …a tempest in a teapot

Wal-Mart (WMT)’s 4Q13 earnings announcement

A week ago Bloomberg reported on internal emails sent by Wal-Mart executive Jerry Murray.   In them, he characterized the firms’ early February sales as a “total disaster,” worse than anything WMT went through during the Great Recession.   Naturally, the stock declined on the news. 

Early yesterday morning, WMT reported its 4Q13 (ended in January) results.  Comparable store sales were up, WMT gained market share, the company is having success at cutting costs and free cash flow increased strongly year on year.

As to 1Q14 sales, WMT has begun to see income tax refund checks show up in its stores.  Sales have “normalized” back to the level the company had been anticipating.  The company lowered its 1Q14 guidance a bit to account for the weak start to the quarter, but otherwise WMT apparently sees no disaster, just business as usual.

WMT also announced yesterday that it’s raising its dividend by 18%, to $.47/share.  That’s the same percentage fiscal 2013 free cash flow went up by.  This is important.  Were there any question about the sustainability of the current level of profit and cash flow, the board of directors would never have authorized a dividend increase.  That’s because the effects on a company’s stock are so devastating if adverse circumstances ever force a cut in the payout level.

So the “total disaster” is really a tempest in a teapot.

two queestions

How does WMT know about the refund checks?

It’s because many WMT customers number among the 15%-20% of Americans who don’t use traditional banking services.  That’s either because they don’t qualify or because they find banks too expensive.  They use WMT’s in-store check cashing services, among other non-traditional options, instead.

It’s also because WMT has incredible software for gathering and analyzing customer information.

How did Bloomberg get the Murray emails?  

I don’t know.  I can’t imagine that Mr. Murray was the source.  I think it was either an instance of hard-ball office politics, where a rival executive hoped to embarrass Mr. Murray publicly by showing he’s too quick to jump to conclusions; or it was a subordinate, hoping to get Mr. Murray to lay off the caffeine.

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