Some interesting thoughts about Wal-Mart (WMT)

The stock hit an 8 yr. low today despite earnings over those same 8 yr’s going in the opposite direction, up. Eight years ago Wal-Mart traded for the $42 a share it hit today and earned $1.25, this year it will exceed $3 a share in earnings and trade for the same $42. Hmmm.

Recently Wal-Mart said it is considering new store sizes and types in the U.S. market but played down the possibility of acquisitions as it faces slowing sales growth at its older stores and the expected new competition from British rival Tesco PLC. I am not sure why a new rival would dampen acquisition plans but that it what they said. They also said they are hiring managers for a team to consider new formats besides the retailer’s four established types, Wal-Mart discount stores, Supercenters that combine groceries and general merchandise, Sam’s Club membership stores and Neighborhood Market grocery stores.

On the international stage Wal-Mart has been buying retail chains and entering joint ventures all over the world to improve its exposure and it has worked, really well. Now, with same store sale in the U.S. in trouble, why not try the same strategy in the U.S. as well?

According to a recent article in the Financial Times, with Tesco moving into the U.S. with its “Fresh & Easy” small format neighborhood groceries soon, Wal-Mart may think that it cannot afford to ignore the success of niche stores. If Wal-Mart is going to try to take on Tesco, or, meet them at the gate when they arrive, there are several retailer operators that should end up on Wal-Mart’s radar despite their claims to the contrary.

One could be Whole Foods (WFMI), which is about to merge with competing organic food chain Wild Oats (OATS). While a great idea, it would make a “organic food” powerhouse and draw the attention of the FTC. But, with the FTC’s track record recently, this may just end up being more of an annoyance than legitimate opposition. Other possibilities are Kroger (KR), which has a market cap of over $19 billion and annual sales of over $66 billion or Safeway (SWY) at a $13 billion market cap and $40 billion in sales. Wal-Mart’s market cap is a cool $179 billion, swallowing any of the four would be real easy.

What to do? I am buying more shares for starters. Currently Wal-Mart is dismally run and Lee Scott is not long for his job. That being said, the company is a money making machine and will only get bigger once management gets it’s head out of it’s, well, you know where. If you were being offered another asset that has almost tripled it’s annual earnings for a price it sold at 8 years ago, wouldn’t you jump at the chance to buy it?

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