Wal-Mart's Castro-Wright Vents Frustration with Wall Street

Wal-Mart vice chairman Eduardo Castro-Wright told the Barclays Capital Retail and Restaurant Conference last week that, despite recent success, he was frustrated that the company isn’t getting the recognition it deserves, and he used Target to help him justify his dissatisfaction.

He was expressing his frustration about Wal-Mart’s share price, and made a case that the retailer’s performance should dictate more appreciation from the investment community. Initially, he focused on the spread between the comparable store sales at Wal-Mart and Target, which he indicated was 829 basis points, his number being a more precise version of the difference between the published 5.9 percent decline Target suffered in fourth quarter comparable store sales and the approximately 2.3 percent increase Wal-Mart enjoyed in the period.

Although he would not use the name Target, Castro-Wright made clear his subject when he referred to Wal-Mart’s closest competitor in mass discount. He characterized the 829 basis point comparable store sales advantage Wal-Mart enjoyed over Target — which he attributed, in part, to a shift in spending among affluent consumers — as “mind-boggling. That’s not 50 basis points, not 200 basis points, over 800 basis points.”

Castro-Wright added:

So if I show some frustration today, you are going to have to forgive me because I live this every day…so am I not communicating? Are we not doing a good job in communicating our performance? Is that what is getting in the way of us getting some credit for what the customer is actually seeing? I don’t know, but I will go on with it and again I ask forgiveness for my frustration.

He went on to compare results between Wal-Mart and the retailer that represents its main competition - without naming which that might be — in each of several categories. In pharmacy, for example, Wal-Mart’s comps were 88 basis points better than its nearest competitors during the second quarter, he said, in grocery, 275 basis points better, in apparel 336 basis points better, in consumer electronics 490 basis points better and in home a whopping 871 basis points better. Additionally, all the spreads mentioned had grown between the third and fourth quarters with the exception of pharmacy.

Even in online sales, Castro-Wright pointed out Wal-Mart was ahead 380 basis points in comparable store sales versus the top competitor.

A comparison of Wal-Mart and Target stock prices reveals why Castro-Wright was expressing his frustration to the Barclay’s investment-community crowd. Wal-Mart is producing better comparable store sales than Target and some other retailers but isn’t seeing a proportional share price lift. Both companies’ shares suffered a price slump post holidays as the disappointing numbers for the season emerged, but Target’s stock has advanced pretty steadily since. More importantly, Target shares shrugged off the poor March figures that came in for retailing overall. In contrast, Wal-Mart, which did better in real terms, posting positive comps for March versus Target’s negative, seems to have gotten penalized for retail in general. Its share price plunged in early April and approached 52-week lows, rebounding mildly as May approached.

A disconnect between its actual performance and the response of investors has haunted Wal-Mart for years. Prior to the recession, the retailer was attacked over labor and community issues, often with accompanying reports about its impending decline, even as it added billions in sales. The recession has muted some of Wal-Mart’s critics who see the retailer’s low prices as a boon to consumers trying to survive tough economic times. At the same time, Wal-Mart has significantly outperformed retailing in general and its major competitor, Target, in particular. Unfortunately for Castro-Wright’s frustration level, it still seems evident that Wall Street isn’t a very good gauge – or evaluator — of Wal-Mart operations.