Investing to Wealth

With the economy in the dumps and the Fed’s Beige book declaring that consumer spending remains weak, it was a bit of a surprise that there was some good news from the retail stocks today.  Discount retailers Walmart (WMT) and Family Dollar (FDO) continued on yesterday’s strong numbers out of Big Lots (BIG) and BJ’s Wholesale (BJ).  Sales were strong at all of these retailers as consumers have been showing trends of being more cost conscious as the recession lengthens.  There is no getting around buying the essentials like food, and these companies offer goods at savings over many competitors, and consumers are being aided by lower gas prices than last year.  This is creating greater traffic at Walmart and Sam’s Club.  In addition to the essentials the increased traffic is leading to better sales in other divisions of Walmart.  CNBC reported the news shortly before the market opened saying,

“And I thought it was interesting today in Walmart’s commentary, obviously the comment about gas prices being lower, putting more money in the pocket of consumers and getting in the store more often was a clear sign that we are seeing people start to spend not just on groceries at Walmart. They also said that consumers are spending on home goods there at Walmart, and spending on hardline. So a bit of a bleed over from Walmart department to Walmart department selling some of their more discretionary items…”

Walmart brought February results to the market and same store sales gained 5.1%, far outpacing the expectations of 2.4%.  The company did an unbelievable $30 billion in sales for the month.  Although those sales were very impressive, perhaps most impressive was the fact that the company hiked the dividend 15% to $1.09 annually.  This is a clear sign of confidence from Walmart management that the strong performance will continue. 

With the assessments of continued difficulty in the macro economy from Bernanke and the Fed earlier this week, we see a fair amount of safety in Walmart at these levels.  There is a possibility that Walmarts international performance may be lagging and could come under pressure in the coming months, but Walmart is a defensive play for investors who think that consumer spending will continue stay depressed.  A cost-conscious shopper is now a Walmart shopper.

Retailers Lead By Walmart Once Again