Wal-Mart Data Trends Cause Increasing Concern, Easter Becomes Important Event

Sequential Price Cuts Across The Board

Analyst Wayne Hood said he sees elevated sequential price reductions across the six major business units for February and March, as compared to January. The analyst noted that grocery, accounting for 56 percent of sales, saw a 25–26 percent price reduction of items on price rollback, sale or clearance in February and March versus 24 percent in January. The analyst also said it sees deepening rollbacks in household essentials.

For household essentials, BMO Capital Markets sees an average price reduction of 43 percent in March, up from 39 percent in February. The firm sees average price reductions in the 18 percent range for food, thus rendering prices elevated in the category.

Baby and beauty categories are starting to increase promotional intensity in March over February, the firm noted. The firm indicated that beauty continues to shift toward rollbacks.

The firm also highlighted the fact that the seasonal area is set for Easter, with related core items such as baskets, plastic eggs and candy are aggressively priced.

Same-Store Sales To Slow

Concluding, BMO Capital Markets said, "Furthermore, the data trend has us increasingly concerned that our first-quarter SSS forecast of +1.5 percent is at risk of falling to the low end or below guidance of +1.0 percent to +1.5 percent (consensus +1.3 percent). If this were to occur, the two-year SSS stack rate would potentially slow to 2.0 percent from 2.4 percent in the fourth quarter."

Underwhelming EBIT/EPS Growth Prospects

Despite the success of many initiatives underway in the United States to sustain or accelerate customer transaction growth and reduce inventory, the firm sees the company's EBIT/EPS growth prospects over the next 12 months trailing the S&P 500 and the Staples group. The view is premised on elevated e-commerce and payroll/training investments.

Consequently, BMO Capital Markets rates the shares of Wal-Mart an Underperform, with a $63 price target.