After Wal-Mart’s fourth quarter earnings results and 2018 profit forecast did not meet analysts’ expectations its stock price slid 10.2% to $94.11. Short sellers were up $364 million of mark-to-market profits on the day. Wal-Mart is the largest short in the Food & Staples Retailing sector with $3.4 billion of short exposure.
Wal-Mart short interest had been climbing throughout 2017, up $823 million, or 43%, ending the year at $2.75 billion. Short interest continued to increase in January 2018, hitting a historical high of $3.94 billion on January 25th, just before Wal-Mart hit its historical price high of $109.55 on January 29th. Shorts have covered some of their exposure since Wal-Mart hit its high, with short interest decreasing by $582 million, or 15%, in less than a month.
We’ve seen continued short selling both yesterday and today, but with such a large drop in stock price, there has also been a substantial amount of buy-to-covers in order to realize some of yesterday’s profits. Wal-Mart short sellers lost $1,194 million, down -38.86%, in year-to-date mark-to-market losses in 2017. Including today’s 2.75% price drop, Wal-Mart shorts are up $279 million in mark-to-market profits year-to-date and $548 million in February alone.
If traders think that Amazon.com will continue to be a market disruptor and eat into Wal-Mart’s market share and drive down margins, we should see WMT short interest climb, but if traders think Wal-Mart can hold its ground and repel Amazon’s advances, WMT short interest should continue to decline. Superman vs. Batman was certainly the undercard to this battle between these two retail giants.
Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.