Billionaire investor Warren Buffett recently withdrew $900 million worth of shares from Wal-Mart, leading market experts to believe the behemoth retailer is in serious trouble.
This is the fourth consecutive quarter that Buffett’s investment group, Berkshire Hathaway, has reduced its holdings in Wal-Mart, and their most recent downsize leaves them with virtually no remaining shares.
The Wall Street Journal reports on Wal-Mart’s status:
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“Analysts polled by FactSet estimate fiscal fourth-quarter earnings of $1.29 a share, down from $1.49 a year earlier. Revenue for the period ending in January is expected to have risen 1% to $131.1 billion.”
In spite of the increase in revenue, Wal-Mart’s prospects appear bleak in the face of the growth of online giant Amazon. At a Berkshire Hathaway meeting last year, Buffett described Amazon as “a big, big force” that “has already disrupted plenty of people and it will disrupt more.” He also said many retailers, “including us in a few areas, have not figured the way to either participate in it or to counter it.”
The Wall Street Journal pointed out the disparity in online sales between Wal-Mart and Amazon:
“The company generated $3.6 billion in e-commerce sales in the third quarter, only 3% of its total revenue. By comparison, Amazon logged $43.7 billion in its most recent reported quarterly revenue.”
Business Insider further compared their profits:
“Walmart’s online sales were $13.7 billion in 2015, compared with Amazon’s $107 billion. Walmart is still ahead in overall sales with $482 billion, more than four times as much as Amazon’s revenue.”
Though Wal-Mart continues to generate massive profits and is working to expand its online sales, it faces hurdles in other regions. For example, as the Wall Street Journal notes, a quarter of its stores are located outside the United States, a reality that may affect its overall sales:
“The strong dollar has hurt Wal-Mart internationally since it gets roughly one-quarter of its total revenue from overseas, with Mexico being a key contributor. Wal-Mart has 2,373 stores in Mexico, roughly 20% of its locations.”
The outlet notes that retailers, “including Wal-Mart have plenty to lose if President Donald Trump imposes new tariffs on trade or a border-adjusted tax. That is because many of them rely heavily on overseas factories for the goods they sell.” As a result, the Wall Street Journal asserts it is unsurprising that Wal-Mart has underperformed since Trump took office, noting their shares have been “essentially unchanged since the presidential election even as the market has raced higher. Wal-Mart has underperformed Amazon by 8 percentage points and the Dow Jones Industrial Average by 13 percentage points since Nov. 8.”
Though Wal-Mart remains a major retail player with huge profits, the loss of faith from Buffett and the continued growth of Amazon are chipping away at its previously untouchable business model. Add to that the uncertainty of Trump’s trade policies with China and Mexico, and Wal-Mart could be in serious trouble moving forward.