Don't Be Bribed by Wal-Mart's Quarter
Last week, Wal-Mart (NYS: WMT) reported enticing quarterly results. Investors shouldn't allow themselves to be bribed by those numbers, though.
First-quarter earnings from continuing operations increased 9.2% to $3.7 billion, or $1.09 per share. Wal-Mart's total revenue surged 8.6% to $112.3 billion.
Investors have been watching whether Wal-Mart can get its act together here in the U.S.; the retail behemoth actually did increase U.S. same-store sales by 2.6%.
Wal-Mart is making "price investments" by reducing prices on some goods to draw shoppers from its rivals. This is a common theme among many retailers recently; both Costco and Whole Foods Market (NAS: WFM) have revealed similar strategies to reduce some prices to drive sales. Major retailers are competing very heavily for consumer dollars and will take the hit on lower margins.
Meanwhile, how much of Wal-Mart's successful quarter parallels Home Depot's (NYS: HD) results? The home improvement retailer benefited from unseasonably warm weather even before spring had officially sprung, with many consumers coming in early for grills, gardening supplies, and other seasonal items. Wal-Mart surely enjoyed similar traffic that might have simply been stolen from the warmer months.
The biggest reason I'd avoid Wal-Mart right now is the recent bribery scandal regarding its Mexican business. Bloomberg covered some companies that have self-reported rather than attempt to sweep such matters under the rug like Wal-Mart did, although it's sadly more common for companies to behave as Wal-Mart.
Unlike Tyson Foods (NYS: TSN) , which received a similar internal alarm that bribes may have been doled out in Mexico, Wal-Mart chose not to turn itself in to authorities. Tyson self-reported and paid $5.2 million, but it avoided prosecution by doing so. Obviously, self-reporting is looked upon more positively.
Such ethics violations pose a huge risk to shareholders. Prosecution can result in major fines, and at the core, this is about something very serious (and negative): corruption. Indulging in bribery says nothing good about the company in question.
I recently spoke highly of Fluor (NYS: FLR) and purchased shares for the real-money portfolio I'm managing for Fool.com. This is because Fluor, which does a ton of international business, has worked hard to craft anti-corruption policies to attempt to mitigate this risk -- and conduct business ethically.
It's ironic that after years of floundering, Wal-Mart has now reported a quarter that looks better even as the Mexican bribery scandal makes its internal policies for international business look so much worse.
Even as Wal-Mart shares jumped on the quarterly results, the company disclosed SEC and Department of Justice investigations, as well as probes by Mexican agencies. It's also being sued by several shareholders. A quarterly success is no reason to ignore a deeper problem; don't be bribed into a false sense of security.
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At the time this article was published Alyce Lomax owns shares of Whole Foods Market in her personal portfolio. The Motley Fool owns shares of Whole Foods Market, Costco Wholesale, and Fluor. Motley Fool newsletter services have recommended buying shares of Costco Wholesale and Whole Foods Market. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.