This morning, an email hit our inbox with a big call on Wal-Mart from a firm called Cleveland Research.
In the note, the firm said it was lowering its Q1 2013 same-store sales growth estimate for Wal-Mart to 0 percent from 1 percent.
In other words, they expect Wal-Mart's sales to stagnate in the first quarter.
The reason why, according to Cleveland Research (emphasis added): "A pullback in consumer spending related to 1) payroll/social security tax increase, 2) delayed tax returns, and 3) rising gas prices."
Below is the thesis:
Walmart US sales appear to have slowed significantly over the past 3-4 weeks. We have been seeing a broader slowdown in consumer spending across all of our consumer coverage over this timeframe, but the magnitude at WMT seems more significant than we would have expected (likely due to greater exposure to low-end consumer). We believe 1Q-to-date comps are likely running negative.
If this weakness persists, we believe WMT may react by getting more aggressive on price, which could negatively impact gross margin performance on top of the weak sales. We see downside to consensus comp and earnings expectations for the year as a result. The stock has recovered back into the low $70’s from the high $60’s. We believe there is potential downside back into the mid if not low $60’s based on 12x our Jan-14 estimate of $5.32.
Bloomberg News just leaked emails from Wal-Mart executives this afternoon calling February sales a "total disaster," off to the worst start in seven years.
That was good timing.
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