NEW YORK (TheStreet) - Wal-Mart's (WMT) - Get Report recently-appointed chief executive Doug McMillon indicated Wednesday the company's board of directors has given him a broad mandate to either shake up the retailer's senior management structure, or consider strategic acquisitions or divestitures, according to a report from Credit Suisse.
On Wednesday, McMillon revealed he was given the opportunity to change the company's senior management structure when he was elected as Wal-Mart's CEO to replace Mike Duke in late November. Credit Suisse interpreted McMillon's comments to mean he has been given a broad mandate by Wal-Mart's board of directors, which could lead to merger and acquisition activity or change to the retailing giant's upper ranks.
"At the meeting it was revealed that at the time of his appointment he was given the opportunity to change the senior management structure, if he saw fit. We think Mr McMillon's mandate includes both acquisitions and divestitures," Credit Suisse analyst Michael Exstien wrote.
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Although Wal-Mart's new CEO may have a wide enough mandate to pursue acquisitions, McMillon signaled the company's preference to grow organically. "While not ruling out acquisitions, the company pointed out their 50% rate of success on these and the preference to build on its own," Exstein wrote.
McMillon's comments came at a special meeting Wal-Mart held with stock analysts and institutional shareholders on Wednesday, which Credit Suisse said was the company's "first coordinated investor relations outreach in memory." The meeting wasn't webcast and doesn't appear on Wal-Mart's calendar of events on its investor relations page.
"There has been no change in the approach to M&A for Mr. McMillon compared to Mr. Duke," Randy Hargrove, a Wal-Mart spokesperson, said in a telephone interview on Thursday.
"[A]s you've seen with our 12 e-commerce acquisitions over the last three years, we intend to be aggressive in adding e-commerce and mobile commerce capabilities, such as the purchase of Adchemy," McMillon said on Wal-Mart's first quarter earnings call in mid-May.
Growing Sales, Merchandising Market Share
McMillon also said on Wednesday that as he prioritizes revenue growth and operational focus, Wal-Mart's investment will be heavily weighted domestically and on smaller stores or e-commerce. Wal-Mart will also prioritize its in-store assortment "as much as or more" than traditional consumables pricing, Credit Suisse said in its report.
With down-market competitor or mired in management change, Wal-Mart may focus on increasing its market share in general merchandise, focusing on that part of the business over consumables.
Family Dollar (FDO) has struggled with poor margins and weak earnings, drawing in the interest of activist investors such as Carl Icahn. Dollar General (DG) - Get Report, meanwhile, recently announced its CEO would depart the company, casting a cloud over its strategic direction. Electronics retailers like Radio Shack (RSH) , Best Buy (BBY) - Get Report and Sears (SHLD) , and low-end apparel manufacturers like American Apparel (AAP) - Get Report have also faced significant financial headwinds in recent quarters.
Holiday merchandising events centered on electronics and technology may be indicative of McMillon's efforts to grow the company's share in the merchandising market. As part of its merchandise effort, McMillon may also prioritize e-commerce, trying to use it as a marketing platform and an anchor for in-store sales.
Given McMillon's comments, Credit Suisse expects that Wal-Mart may pick up market share in coming quarters from retailers who are facing pressure down market or in having adequate assortment. Wal-Mart also said it has seen little change to the economic health of its consumers in the past six months and doesn't forsee any gross margin pressure in the second quarter versus the first quarter.
Credit Suisse holds an "outperform" rating and a $87 a share price target for Wal-Mart. Excluding dividends Wal-Mart shares have fallen over 3% year to date.
-- Written by Antoine Gara in New York