NEW YORK (TheStreet) -- Walmart Stores (WMT) , after years of touting China as one of its best markets, in August said its performance there was among the worst in its major countries. A management shake-up and job cuts have followed, Bloomberg reports.
Although the reversals seem abrupt, cracks in the foundation of Walmart's retail business in China have been developing for years, hidden by questionable accounting and unauthorized sales practices, according to employees and internal documents reviewed by Bloomberg.
The practices, including bulk sales to other retailers and some sales allegedly booked when no merchandise left the shelves, made business appear strong even as retail transactions slowed and unsold inventory piled up, these people and documents say, Bloomberg notes.
Stores in China continue to make bulk sales, sometimes unprofitably and without required management authorizations, according to employees who've left the company this past month. Concerns about bulk sales, raised as far back as 2011 in an internal report, have been the subject of inquiries in China by Walmart's legal team as recently as May, according to an internal company e-mail and an employee interviewed by lawyers, Bloomberg says.
The report and interviews with current and former employees say Chinese Walmart stores, under pressure to meet earnings targets, resorted to temporary markups of inventory as an accounting move that can burnish profits without any added sales of merchandise, according to Bloomberg.
Shares of Walmart Stores are slightly lower at $82.90 in pre-market trade.
Separately, TheStreet Ratings team rates WAL-MART STORES INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate WAL-MART STORES INC (WMT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year, growth in earnings per share and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- WMT's revenue growth has slightly outpaced the industry average of 0.5%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has significantly increased by 72.54% to $3,570.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 51.04%.
- The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- WAL-MART STORES INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, WAL-MART STORES INC reported lower earnings of $4.86 versus $5.01 in the prior year. This year, the market expects an improvement in earnings ($5.00 versus $4.86).
- You can view the full analysis from the report here: WMT Ratings Report