Retail giant Wal-Mart Stores, Inc. (WMT –Analyst Report) recently announced the appointment of Doug McMillon as its new chief executive officer (CEO). McMillon, currently serving as the head of Walmart International division, will succeed president and CEO Mike Duke, after he steps down on Feb 1, 2014.
McMillon will join the company’s board effective immediately, whereas Duke will continue to serve as the chairman of the executive committee of the board and will stay as an advisor to McMillon for one year. Walmart also plans to announce McMillon’s successor as CEO of Walmart International by the end of the fiscal year.
McMillon, 47, has been associated with the company since 1984 and therefore has an in-depth understanding of the company’s business segments. He also has leadership experience in the company as he has served as the president and CEO of Walmart’s Sam’s Club division for three years.
McMillon, as a CEO, is expected to employ better strategies according to the changing demand scenario in order to revive the company, which has been currently struggling with decelerated growth. Walmart also needs to improve performance in some overseas markets where it has stumbled.
Walmart has been witnessing sluggish growth in the past few quarters owing to difficult economic environment and changing consumer behavior. Weak spending from lower- and middle-income segment consumers is hurting the company’s U.S. comps. Middle-class consumers are struggling to cope with rising gas prices, delayed income tax refunds and higher payroll taxes. The economic strains in the U.S. and abroad are likely to pressurize its low-income shoppers for the rest of fiscal 2014.
The gloomy consumer spending environment has resulted in weak quarterly results in all the three quarters of fiscal 2014. Walmart also lowered its earnings guidance twice for fiscal 2014. At the same time, Walmart faces fierce competition from online competitors and dollar chains that offer convenience and lower prices.
In addition, Walmart remains under media scrutiny due to its size and scale of operations. It faces pressure to further increase its oversight of factory conditions abroad following a building collapse in Bangladesh in April and has also been criticized for its improper treatment of its hourly workers. Walmart also faces bribery allegations and lobbying charges for its operations in Mexico, India and Brazil, which has slowed down its overseas businesses.
Nevertheless, we believe the appointment of a new CEO, its strong international presence, solid e-commerce business and company’s initiatives to drive holiday season will drive Walmart’s stock going forward.
Walmart carries a Zacks Rank #3 (Hold). Better ranked retailers include Harris Teeter Supermarkets Inc (HTSI – Snapshot Report), Kroger Co (KR – Analyst Report) and Big Lots Inc (BIG – Analyst Report), all with a Zacks Rank #2 (Buy).
