Wal-Mart Year A Mixed Bag

Last updated Saturday, December 31, 2005 9:26 PM CST in Business

By Anita French
The Morning News

Don Gher, retail analyst with Coldstream Capital Management, went in another direction, saying Wal-Mart's rapid response to Hurricane Katrina relief had the most impact in 2005.

"I think it gave even its critics pause in regards to the way the company responded to those in need. Wal-Mart's outpouring of support may have led to a more balanced look at the company by some who wore blinders to (Wal-Mart's) positives before," Gher said.

Wal-Mart contributed millions to Hurricane Katrina relief in August and trucked in thousands of supplies. More than 120 Wal-Mart stores closed during the hurricane.

But two issues that also attracted a lot of media attention for Wal-Mart in 2005 were a national campaign by critics seeking to change the retailer's culture and the company's legal tangles.

Lunch Money
In March, the federal case against Wal-Mart over its alleged use of illegal immigrants to clean floors at its stores ended when the company agreed to pay a record $11 million civil fine to the government. The case stemmed from 2003 raids by the U.S. Immigration and Customs Enforcement of 61 Wal-Mart stores across the country.

No criminal charges were filed against the company.

An Alameda County jury on Dec. 23 awarded $172 million to thousands of California employees of Wal-Mart Stores Inc. who claimed they were illegally denied lunch breaks.

The retailer was ordered to pay $57 million in general damages and $115 million in punitive damages to about 116,000 current and former California employees for violating a 2001 state law that requires employers to give 30-minute, unpaid lunch breaks to employees who work at least six hours.

Wal-Mart said it would appeal the jury's verdict.

Wal-Mart's fines barely made a dent in the $285 billion in total sales it rang up in 2004, along with earnings that topped $10 billion for the first time -- a figure one analyst called "mind-boggling."

Big Money
The financial news wasn't all rosy. Wal-Mart's domestic store division -- 67 percent of its revenues -- missed its earnings for the second time in corporate history in the first quarter of fiscal 2005. So far, Wal-Mart has failed to increase operating profits faster than sales, a barometer the company uses to measure the efficiency of its performance.

Gher called Wal-Mart's financial performance in 2005 a "mixed bag."

"Revenues were about as expected, but the higher expenses have led to lower than expected earnings," he said.

Coldstream owns Wal-Mart stock, but Gher does not, he said.

President and CEO Lee Scott focused more on the company's image than its fiscal performance at Wal-Mart's shareholders meeting in June. Scott said he had spent the last year trying to get Wal-Mart's story out to the public.

"We will always be committed to the highest standard of integrity even when it hurts," Scott said, in reference to recent corporate scandals.

Coughlin Case
The company came under unceasing attack in 2005 by two Washington-based groups with union ties -- Wal-Mart Watch and Wake-Up Wal-Mart -- in addition to being hit with negative publicity stemming from corporate upheavals.

Heading the list in the last category was the March 25 resignation of 28-year company veteran Tom Coughlin as vice chairman of the Board of Directors after Wal-Mart said it had carried out an internal investigation of Coughlin for alleged fraud. The company turned the investigation results over to the U.S. attorney in Fort Smith, where a grand jury was reportedly reviewing the case.

Coughlin, through his attorneys, has denied the allegations.

Wal-Mart also filed a civil suit against Coughlin, seeking to reclaim the financial settlement it made with him when he and the company signed a January retirement agreement.

Coughlin filed his own court motion in return, asking to have the civil suit against him dismissed because of a general mutual release contained in the retirement agreement.

Benton County Circuit Judge Jay Finch threw out a large part of Wal-Mart's lawsuit when he ruled in November that it failed to show that Arkansas law required a company officer to disclose any improprieties before signing a general release from liability.

But Finch left the door open for the company to amend its complaint to include any misdeeds Coughlin might have committed after the retirement agreement was signed. Wal-Mart quickly filed an amended complaint and, almost as quickly, Coughlin filed another motion to have it dismissed. The case is still under consideration.

Whistleblower
The lawsuits didn't stop there. Jared Bowen, a former Wal-Mart vice president who worked directly under Coughlin, filed a federal whistleblower complaint against Wal-Mart in May, claiming the company fired him after he came forward with evidence of Coughlin's alleged fraud.

Wal-Mart shot back that Bowen was not the true whistleblower -- the real one still worked for the company, it said -- and Wal-Mart made its case against Bowen by posting evidence the company said proved he was not truthful at its Web site, walmartfacts.com -- causing Bowen to file a defamation suit against his former employer.

And, in November, Robert E. Hey Jr., a former Wal-Mart executive who was fired in December 2004 and worked directly under Coughlin, pled guilty in federal court to three criminal counts of wire fraud stemming from an embezzlement scheme.

Hey pled guilty to creating false invoices between March 2001 and October 2001, in a total amount exceeding $15,000, that allegedly went to pay for personal items for "John Doe."

The dates, amounts and parties involved in the charges Hey pled guilty to coincide with some of the allegations made against Coughlin in Wal-Mart's lawsuit against him.


Meanwhile, Wal-Mart Watch and Wake-Up Wal-Mart began their campaigns against the company over what they call its poor wages and benefits. The crux of the campaign came in November when Wal-Mart Watch held a week of events, during which an anti-Wal-Mart documentary was screened at hundreds of sites across the country.

Wal-Mart again came under attack when several "secret" internal memos were released by Wal-Mart Watch, which it said put the company in a bad light. Wal-Mart Watch also released a poll it had sponsored that seemed to suggest the public had a less favorable view of Wal-Mart because of all the bad publicity.

But Wal-Mart thumbed its nose at the poll and the bad publicity by racking up impressive sales during Black Friday, the day after Thanksgiving when shoppers traditionally start their holiday spending. Sales at Wal-Mart stores open at least a year -- a key retail measure known as same-store sales -- rose 4.3 percent in November, helped by its Black Friday deals. It was a far better showing than the 0.7 percent gain for the same period last year.

Turock called the constant attacks by critics a "blessing and a curse" for Wal-Mart.

"The curse is obvious," he said. "A lot of money and valuable time is spent with lawyers and PR agencies and image advertising. Second, there is some damage to the brand among potential customers who are not core customers already ... The polarization about Wal-Mart may restrict its presence and eventual success in the more liberal, democratic, so-called blue states, where the brand doesn't resonate, or even alienates."

The blessing part, Turock said, is that the current debate may lead Wal-Mart to more innovative problem-solving.

Wal-Mart continued its massive public relations effort started in 2004, with Scott embarking on a nationwide speaking tour and the company spending millions on media ads, even going so far as to hold its first-ever media conference in April in Rogers. Around 100 journalists from across the country and overseas attended the two-day event.

The company also said it was joining with the National Fish and Wildlife Federation in a conservation program that calls for the company to commit $35 million to preserving wildlife habitat. And Wal-Mart also opened two "green" Supercenters in July and September in Texas and Colorado that use new environmental technology.

Technology, Overseas
Wal-Mart proved one set of critics wrong when 100 of its suppliers met the company's January mandate for having radio frequency identification, or RFID, tags pallet- and case-ready. Some detractors said the suppliers wouldn't be able to meet the company's deadline.

As of April, Wal-Mart had RFID in use at 104 of its stores, 36 Sam's Clubs and three distribution centers, it said. The next 200 suppliers are to come on board by January 2006.

On the international side, Wal-Mart said in December it had purchased hypermarket operator Sonae SGPS SA in Brazil for $757 million.

Sonae's 140 hypermarkets, supermarkets and wholesale units boost Wal-Mart Brazil's presence to 295 units in 17 of the country's 26 states.

The company also said it had plans to acquire majority ownership of Carcho, a supermarket chain serving Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. Carcho is a joint venture between Royal Ahold NV of the Netherlands and two Central American groups, the company said. Wal-Mart bought a minority stake in the venture in September.

And, in Japan, Wal-Mart became the majority owner of Seiyu Ltd, making the company a subsidiary of Wal-Mart Stores Inc. Wal-Mart had held a minority interest in Seiyu since 2002.

Reader Comments (No comments posted.)

The following comments are provided by readers and are the sole responsibility of their authors. The Morning News does not review comments before their publication, nor do we guarantee their accuracy. By publishing a comment here you agree to abide by our comment policy. If you see a comment that violates our policy, please notify the web editor.