A big bright spot and many dark clouds at Walmart shareholders meeting

For much of the past decade the persistent problem Walmart had to address with shareholders at its annual meeting was a long dormant share price. That’s not the case this year, but there are plenty of other issues to concern shareholders.

Walmart was one of the best performing Dow components in 2012 so the company has a good story to tell on that front. It also was generous with its cash earlier this year boosting the dividend by 18% to $1.88. And the company can tout progress against a five year goal to eliminate 100 basis points from its cost structure that will go a long way toward enhancing future profitability.

Despite these positive, shareholders and analysts gathering in Northwest Arkansas or listening to the Web cast on Friday can’t help but be troubled but numerous other issues. For starters, there are the now familiar organized protests by union-backed and non-union backed groups. The names of these groups are irrelevant because they come and go every few years, even as complaints about wages, benefits and working conditions remain the same. For awhile there it seemed like Walmart had prevailed in the court of public opinion, but the company’s inability to silence critics, despite progress on a variety of fronts, should be concerning to shareholders because it means Walmart is forced to spend time and energy fighting battles that have nothing to do with growing sales and profits.

The other trouble spot is lingering issue related to global sourcing. Because of its scale, it appears next to impossible for Walmart to untangle the web of contractors, sub contractors and subcontractors to sub-contractors in poor countries from which it must source goods in order to offer low prices. In fairness, there are plenty of retailers dependent on unscrupulous suppliers who pay workers next to nothing to manufacture goods in unsafe structures. However, it is Walmart that gets the most attention and despite efforts over many years to upgrade compliance programs the problems won’t go away..

Then there is the issue of the company’s never ending investigation into violations of the Foreign Corrupt Practices Act. Wal-Mart Stores Inc., chairman Rob Walton and president and CEO Mike Duke both vowed at last year’s meeting to leave no stone unturned in the company’s investigation, but shareholders deserve some insight into when the process will end as opposed to quarterly updates about how much money is being spent on legal fees. In the first quarter alone, expenses related to the investigation totaled a disturbingly high $73 million, well above the $40 million to $45 million the company had expected to spend.

Lastly, there is legitimate concern about the trajectory of the company’s U.S. business that remains the primary driver of profitability. Same store sales decelerated throughout 2012 and turned negative during the first quarter with a worse than expected 1.4% decline. The trend is expected to reverse itself in the second quarter with a flat to 2% gain, but given the company’s recent history of missing its own estimates that guidance range seems suspect.