June 2014 Might Have Been One Of The Better Months For Wal-Mart

The first half of 2014 has been sluggish for several U.S. retailers, including Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). During the first three months of the year, retail sales remained subdued due to the extreme cold weather across most parts of the country, that prevented store visits. However, retail sales growth picked up in subsequent months as pent-up demand drove shoppers back to stores. The group of eight retailers tracked by Thompson Reuters reported 6.4% rise (month over month) in their April sales and 4.6% growth (month over month) in their May sales. ^[1] While retail sales in April were much better than they were in March and February, they increased by just 0.5% year over year. This clearly indicates why Wal-Mart reported 0.2% decline in its comparable sales for the quarter ending in April. The retail giant has registered negative comparable store sales growth for five consecutive quarters now.

Wal-Mart does not report monthly sales, unlike many of its counterparts.  However, we expect the current quarter (May to July) to be relatively better for the retail giant compared to the preceding quarters and even the same quarter of last year. Given that Wal-Mart caters to more than 100 million customers in the U.S. every week and accounts for over 10% of the country’s non-automotive spending, its sales largely depend on the broader retail market trends. While the U.S. retail sales in May improved by a mere 0.3% year over year, they increased by a healthy 3.8% in June, according to Redbook Research’s latest reports. This is an indicator that Wal-Mart performed well during these months and it is likely to sustain this momentum in July, given that Redbook predicts retail sales to improve by 3.4% year over year in July. Even moderate sales growth during these months can help Wal-Mart post positive comparable sales growth in Q2 fiscal 2015.

Our price estimate for Wal-Mart stands at $79.30, which is less than 5% ahead of the market price.

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While the month of May was marked by a rebound in foot traffic due to significant pent-up demand, at least some shoppers headed out for vacations during June. This led to a decline in store traffic during the month, which ultimately resulted in 1.2% month-over-month fall in retail sales. Although June 2014 wasn’t as fruitful for U.S. retailers as May 2014, it was much better than June 2013. During the month, retail sales increased by 3.8% year over year, primarily driven by strong sales during the Independence Day weekend. June 2014 was a five-week period on the U.S. retail calender that ended on July 5. Strong sales of seasonal products and attractive promotions during the last week of June boosted store traffic, resulting in 6% sales rise during the week as compared to the same period last year. Interestingly, Redbook stated that heavy rains due Hurricane Arthur along the East Coast drove shoppers into shopping malls and retail outlets, which complemented the store traffic increase. ^[2] However, we are not sure if that was a significant contributor. Nevertheless, judging by the trends, we believe that June 2014 was one of the better months for Wal-Mart.

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1. U.S. retailers beat sales expectations in May, Reuters, Jun 5 2014 [↩]
2. U.S. Retail Sales Fell In June From May – Redbook, 4-Traders, Jul 8 2014 [↩]