By JOHN JANNARONE: Wall Street Journal
Ah, the good old days. Sales were booming, margins were on the rise, and customer-traffic growth never seemed to slow. If only the recession could have lasted.
Wal-Mart Stores might have had that wish Thursday, as some rivals reported impressive March sales. Target reported 10% higher same-store sales. Wal-Mart doesn’t report monthly data, but its most recent U.S. same-store sales, for its fiscal fourth quarter, were down. No surprise then that Wal-Mart’s stock was virtually flat Thursday, while Target rose 3%.
Investors are right to treat Wal-Mart with caution. The company is unlikely to benefit much from a consumer recovery. While Target’s same-store sales historically have a 60% correlation with the government’s core retail-sales data, Wal-Mart’s correlation is just 8%, according to Colin McGranahan of Sanford C. Bernstein. The relationship appears to be holding up. Core retail-sales growth has been positive every month since November. In the three months ending in January, Wal-Mart’s U.S. store traffic declined slightly, while Target’s rose 2%.
In some product categories, Wal-Mart already has lost market share. Wal-Mart’s share of small kitchen appliances fell to 30.2% in the fourth quarter of 2009 from 33.4% a year earlier, according to research firm TraQline. Target’s share, meanwhile, rose to 13.1% from 12.6%.
* Wal-Mart Bets on Reduction in Prices
True, Wal-Mart’s price advantage over rivals such as grocers should remain an advantage. But grocers have become more competitive. J.P. Morgan’s Charles Grom says the price difference between items purchased at Wal-Mart and average grocers has narrowed to 12% from 18% in April 2009. J.P. Morgan compared identical baskets of groceries.
Even so, Wal-Mart’s stock, trading at a discount to Target of only one earnings-multiple point, is no bargain.