Why 2016 Will Be A 'Lost' Year For Wal-Mart

In a report published Wednesday, Barclays analyst Meredith Adler maintained an Equal Weight rating on

, while reducing the price target from $80 to $73. Wal-Mart reported its 2Q16 EPS at $1.08, missing the consensus and Barclays estimates by $0.04. The company's US comps rose 1.5 percent, better than the Barclays estimate of 1 percent growth. Operating margin contracted by about 56bp, on account of a 51bp increase in SG&A as a percentage of sales and a 4bp decline in gross margin. The EPS estimates for 2Q16E and FY16 have been reduced by $0.08 to $0.97 and by $0.23 to $4.48, respectively. Analyst Meredith Adler wrote, "It now looks even clearer than before that fiscal 2016 will be a lost year for WMT." The company was investing "heavily" and more than expected to improve the shopping experience of its customers as well as to enhance its e-commerce capabilities. Adler explained, however, that Wal-Mart was now faced with "additional profit pressures" due to which it has reduced its FY16 EPS guidance by nearly 7 percent. In the report Barclays noted, "The newest issues relate to shrink, which is much higher than expected, and pharmacy profitability. Reducing shrink can be done (at least in theory) but will take time, while we see no way to fix the pharmacy issue given the limited leverage of WMT (and retailers in general)." Adler added that e-commerce growth was slowing from 22 percent in FY15 to an estimated 15-20 percent in FY16, due to weakness in the UK, Brazil and China. "These are also WMT's three softest markets for overall sales."