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Too Big to Succeed – It’s Time to Break-up Walmart: Sozzi

Breakout

Walmart (WMT) missed earnings estimates and guided lower for the current quarter this morning, citing currency impacts and "considerable headwinds to top line sales," in the words of CEO Mike Duke. The news comes just one day after shares of Walmart made an all-time high just under $80 a share. Walmart's stock is up more than 17% year-to-date.

Brian Sozzi of Belus Capital Advisors says the quarter was worse than it appears. "I see a lot of disaster in the quarter," the dapper Sozzi says in the attached video. The stock's ramp up was a function of a quest for yield by investors, he says. Traffic was worse than last quarter, same store sales were negative, and the expense of feeding so many core growth opportunities is simply too much.

Doctor Sozzi has a prescription for what's ailing the world's largest retailer: "get rid of Sam's Club... it doesn't belong in the company especially when the focus is clearly on investing online and winning internationally."

Only under the umbrella of Walmart as a parent could a company as large as Sam's Club get lost in the shuffle. A rival to Costco (COST), Sam's did more than $56 billion in revenue last year compared to $274 billion for Walmart US and $135 billion for Walmart International.

There's a strong argument to be made that Sam's Club would operate better as an independent entity. The division makes up 12% of Walmart's total sales but only 7% of total profits. While there are distribution efficiencies with the commonalities of products there's also brand confusion and a lack of focus.

As it stands, Sam's Club is akin to a low-end Walmart with an annual membership fee. Splitting off from its parent company would immediately give Sam's a chance to fulfill its potential of becoming Costco's biggest nightmare.

Walmart is chugging along fine as is and could probably do so for quite a while. The best time to make hard decisions is when you want to, not when you have to. With Costco at all time highs and Walmart too distracted to provide a credible threat, it's time for Walmart to make the tough call. It's time to kick Sam's Club out of its parent's basement and let it fend for itself in the real world.

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