Retail Sector Play: Wal-Mart
The Retail sector is showing considerable strength. Our position in RTH (Retail Holders) index has been performing well.
We took a more concentrated position in Retail by investing in SHOO in which we made a 7% gain in a week. Next, we took a position in Gap. Unfortunately, we lost 1% in that position as more serious problems with the Gap came to light.
Our next play in the Retail sector is Wal-Mart.
$4 Prescription Drugs Coming to a Wal-Mart Near You!
If you have not heard about the buzz with Wal-Mart, be prepared to be amazed. Wal-Mart is rolling out $4 generic prescription drugs in 12 more states including Michigan and Ohio as of Thursday, sooner than originally planned, bringing the program to nearly two-thirds of its U.S. stores.
The $4 generic program covers a 30-day supply of 143 different drug compounds that represent about 25 percent of generic prescriptions dispensed in Wal-Mart pharmacies.
Wal-Mart said that in the first four days after the program was expanded to 14 new states last week, it filled more than 152,000 new prescriptions.
Wal-Mart is not making money with this generic prescription drug program. Instead, they are going for viral sales in which the prescription drug counter is located in the back of their stores. The idea is to create greater traffic through the store, and hence greater sales, as customers seeking to capitalize on the cheapest generic drugs on the market are slammed with advertisements and sale signs as they pass through the bulk of the store.Wal-Mart Brings Costs Down
In an October 24th article, the AP writes:
"The retailer's plans to throttle back on spending and expansion contrast with the aggressive growth strategy of recent years.
Analysts were generally supportive of Wal-Mart's moves, aimed at restoring sales and earnings growth and boosted its stagnant stock.
"Management's capital expenditures guidance was even better than our expectation," Goldman Sachs analyst Adrianne Shapira wrote in a client note. "In our opinion, management's focus on 'returns-based growth' should help drive multiple expansion."
Bear Stearns also said Wal-Mart's decision to curb square footage growth was positive. "More specifically, we are encouraged by management's new capital allocation mindset, which aims to improve capital efficiency," analyst Christine Augustine wrote.
Bank of America said slowing square-footage growth would raise free cash flow, which in turn makes more likely a higher dividend payout or increased share buybacks, both of which Wal-Mart has not done in more than a year, analyst David Strasser wrote. A lower rate of expansion will also improve same-store sales -- sales in stores open at least one year -- Strasser added."Wal-Mart and China
In an October 24th article by Marcus Kabel, Associated Press Writer, Mr. Kabel explains the Wal-Mart and China connection:
"Wal-Mart's top international executive said Tuesday that the world's largest retailer wants to tackle China the way its founder, Sam Walton, did in the United States -- by offering a slew of items at a resonable price.
"You have to be excited by China. That's where Wal-Mart can win," Mike Duke, chief executive of Wal-Mart Stores Inc.'s international division, said at a meeting with Wall Street analysts.
Duke was responding to questions about reports that Wal-Mart Stores Inc. wants to expand in China by offering about $1 billion for a chain of 100 combination merchandise and grocery stores, or hypermarkets.
News reports citing unnamed sources have said Wal-Mart is bidding for the hypermarkets from Taiwanese company Trust-Mart."Wal-Mart Seeks to Improve Image
In a Reuters article by Emily Kaiser published on October 24th, Emily writes:
"When Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) executives meet with politicians in Washington these days, the discussion no longer centers on wages and benefits, or how the retailer pressures suppliers and competitors.
"Our conversation now begins on things like $4 generics," Leslie Dach, Wal-Mart's head of corporate affairs and government relations, said Tuesday at an analysts meeting in Teaneck, New Jersey, referring to the list of 143 cut-price generic drugs that Wal-Mart is selling in 15 U.S. states.
"The conversation begins on things like jobs and opportunity zones ... Can you do for my city what you were able to do for Chicago?" where Wal-Mart recently opened its first store, Dach said."Wal-Mart's New Ad Agency
In an article written by Paul Thomasch of Reuters, Mr. Thomasch explains Wal-Mart's new ad agency:
"Wal-Mart Stores Inc. has awarded its $578 million advertising work to agencies owned by Interpublic Group of Cos Inc. and Aegis Group.
Wal-Mart decided put its ad accounts up for review as part of its move toward a more polished image, which included adding more upscale items such as flat-panel televisions and trendy clothing. The retailer, for instance, recently signed on as sponsor of ESPN's Monday Night Football to promote its high-definition TVs.Seasonality
4th quarter sales at Wal-Mart from the Christmas season should be good this year according to Retail analysts. This positive forecast for Retail this holiday season is due, in no small part, to lower unleaded gas prices consumers pay at the pump.