BENTONVILLE, Ark. — Investors have found plenty of reasons to be optimistic about Wal-Mart of late, as the company found the right mix of merchandise and marketing to complement its refocus on low prices as Americans seek less expensive options.
Wal-Mart’s shares have soared more than 30 percent since early September, while the stocks of many major retailers, including discount rival Target, have fallen during the same period and the Dow Jones industrial average has slipped 6 percent.
“The economy got bad at exactly the perfect time” for Wal-Mart, said Patricia Edwards of investment manager Wentworth Hauser and Vio lich, which resumed buying Wal-Mart shares in November. “As Wal-Mart got their act together, the consumer needed to be able to trade down. Wal-Mart is providing a better shopping experience and is allowing people to save money.”
Still, the world’s largest retailer faces challenges as shareholders gather for its annual meeting Friday in Arkansas.
Those include soaring transportation costs that are squeezing profit margins and increasingly frugal customers. Last month, Wal-Mart gave a cautious outlook as it reported better-than-expected first-quarter profits.
“We have a sea change in the mind of the consumer,” said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates, noting that the rough economy is pushing Americans to the point where they are focusing on the bare essentials.
The biggest risk to Wal- Mart, he said, is signs of strain in the financial well-being of its most loyal customers.
Edwards says Wal-Mart can retain its more affluent shoppers even when the economy recovers because the stores are nicer to shop at — tidier, with improved displays and customer service.
Wal-Mart’s first-quarter performance, along with that of other low-price retailers, was among the few brighter spots for retailers. Its profits rose almost 7 percent, while department-store chains J.C. Penney and Kohl’s recorded sharp declines.
Target’s earnings fell 9 percent, and analysts believe it is more vulnerable to the spending slowdown since 40 percent of its business is from home furnishings and apparel.
