A Lesson in Disclosure from Wal-Mart

At 10:30 a.m. ET on October 14, 2015, Wal-Mart stock was trading pretty much flat on the day. Within 20 minutes, the stock was down approximately 9%. For a stock that usually isn’t very volatile, that’s an extraordinary intra-day move. So what happened?

On this particular day, the Company was holding its Annual Meeting for the Investment Community. Just after 10:30 a.m. ET, the CFO walked through the company’s financial guidance for the next few years. The market moving information was Wal-Mart’s fiscal 2017 guidance. The company indicated that it expected EPS to decline by 6-12%, while the current consensus estimate was projecting an increase of 4%. That’s a pretty dramatic resetting of expectations. A few minutes later, the company issued a press release containing the same guidance.

According to one attendee, people rushed out of the room where the presentation was being held, and the anteroom was filled with analysts and portfolio managers on the phones talking with trading desks.

Whatever information that Wal-Mart provided to put the 2017 guidance into context was missed by those attendees who rushed out of the room to trade the stock.

Nearly $20 billion of shareholder wealth was wiped out in Wal-Mart stock over the course of 20 minutes. How much of that was an overreaction as investors had to make trading decisions on the fly?

No shareholder likes getting bad news about a stock they own. But the reaction is exacerbated when they don’t have time to truly digest the new information before trading on it.

To make matters worse, the CEO of Wal-Mart appeared on CNBC the morning of the Investor Day and gave a lengthy interview. He made no mention of the 2017 forecast.

The more shareholder-friendly approach would have been to issue the press release a few hours before the market opened that day and have the CEO speak to the 2017 forecast during his interview on CNBC. That would have given all shareholders the ability to absorb the information before the start of trading.

Every company will have bad or disappointing news to report at some point in its lifetime. Don’t make matters worse by ignoring one of the basic rules of Investor Relations 101: Always give your analysts and investors material information outside of trading hours and give them time to digest the news before having to make a trading decision.