主题：04/09/2009 Market View -- 宁子

WMT March sales miss expectations. Good or bad?

Wednesday we discussed whether tumbling wholesale inventories was a good or bad indication for the economy. At this juncture, low inventories are good as that will require a rebuild and that means future production. It doesn't say much for the current situation, but it is a positive when demand rises.

Thursday there were gloomy faces with regard to the retail sector as same store sales fell 1.8% versus the 0.9% anticipated and the 0.3% gain in February. The big cherry on top (or the black rose if you want) was WMT's miss of expectations. Sales were up, but the 1.4% fell far short of the 3.2% expected.

Woe is retail, woe is retail. The giant reported worse sales and thus all must be lost. Okay there was not that level of wrist-slashing despair, but the headlines on all the financial stations, just under the Wells Fargo news, was the WMT miss and what it meant for the state of the consumer. On top of that there was the February trade gap that hit a record low (-$26.0B) as consumers shun imported goods. Of course that was February data and same store sales rose 0.3% that month so the correlation is somewhat weak; still, when the US is in recession that is the only time consumers don't consume a lot of foreign goods.

But is a WMT miss automatically a bad thing for the economy? No. WMT is huge and it has an indelible footprint on US retail sales. Nonetheless, it is still a recession stock as its sales rise in recessions along with its stock price. After a run to a peak in September 2008 WMT peaked. The market peaked as well so it is not necessarily an indication of a change specific to WMT. What does show something WMT specific is the tumble this month after WMT recovered to the 200 day SMA only to roll over and drop 10% this month as the rest of the market rallies.

WMT does worse when the economy improves because consumers no longer feel compelled to pinch as many pennies and spread out to boutiques, specialty stores, and the high end stores as well. Note that WMT started its run higher ahead of the economic downturn, outperforming nearly all retailers as investors anticipated its rising sales due to a declining economy. When investors anticipate an economic recovery, they will start unloading WMT. The rise and fall occurred in the 2000 to 2002.

Is it starting right now? WMT is not participating in the new run higher and sales have slowed. It is hard to extrapolate March alone into a decline slope for WMT sales. One month alone can be an outrider and other stores failed to show great sales either. In any event the stock price will fall ahead of a sales drop and thus we are looking at the failure to participate in this rally as a significant development. It is not definitive in itself, but with the other indications of economic improvement the past few months WMT's action is something to log with the other data. And to answer the above question, a decline in WMT's stock price is not a bad thing for retail overall and indeed generally is a positive portent for other retailers that see their business improve as consumers feel positive about a recovery and start spreading their disposable dollars around versus buying WMT's functional but painfully bland product lineup.