Wal-Mart Loses Second Top Exec of Year

Wal-Mart Stores Inc. (WMT) has lost two of its top five executives this year with the unexpected departure of Sam's Club chief Kevin Turner for Microsoft Corp. (MSFT), but analysts said on Friday the upheaval won't derail the world's biggest retailer.

Turner, whose resignation on Thursday followed fallen star Tom Coughlin's (search) retirement as vice chairman in January, was considered a charismatic leader credited with turning around the struggling Sam's Club warehouse division.

When Turner took the stage at Wal-Mart's annual meeting each June, the roaring cheer from his small-but-mighty Sam's Club (search) delegation shook the stands at the University of Arkansas basketball arena and drew smiles from Chief Executive Lee Scott. Many on Wall Street considered Turner a possible successor to Scott.

Wal-Mart prides itself on promoting from within. Many of its top executives rose through the hourly ranks and have spent decades with the company, which has had only three CEOs in its 43-year history.

"Kevin Turner was seen as an up-and-comer within senior management ranks, so the departure does result in a loss of talent," Sanford Bernstein analyst Emme Kozloff wrote in a note to clients on Friday.

"While the timing of this executive departure is not particularly good for Wal-Mart in light of the Coughlin situation, which exposed weakness inside the upper ranks of Wal-Mart management, the loss of Kevin Turner is not going to alter the course of the company," Kozloff said.

Wal-Mart accuses Coughlin of misappropriating some $500,000 of company money through misuse of gift cards and expense reports -- charges he has repeatedly denied.

But before his fall from grace, Coughlin was seen as an enormously popular leader whom many on Wall Street considered one of the top minds in the retail industry.

Indeed, when Turner was named head of Sam's Club in 2002, he reported to Coughlin. Analysts viewed the set-up as a mentoring arrangement and a sign that perhaps Wal-Mart was grooming Turner to run the company some day.

Sam's is the smallest of Wal-Mart's three retail divisions, but arguably the most successful in recent quarters with sales growth easily topping the U.S. Wal-Mart Stores division. In the last fiscal year, Sam's turned in 5.8 percent sales growth at stores open at least year, double the 2.9 percent same-store gain at U.S. Wal-Mart stores.

Morale seemed high under Turner's leadership, judging from the thunderous applause from his employees at the annual meetings. For a company grappling with the Coughlin scandal and a stubbornly low stock price, morale is becoming a big issue.

But analysts said Turner's replacement, Doug McMillon, should be able to keep the warehouse club unit on track.

"We like Doug McMillon, at age 38 a solid merchant with good people skills who has done a nice job putting together a motivated product team at Sam's," said Robert Buchanan, retail analyst with A.G. Edwards, in a research note.

Still, Buchanan said McMillon "has his work cut out for him" in trying to catch up with larger rival Costco Wholesale Corp. (COST), which generates much stronger sales per square foot at its warehouse clubs.

Costco excels at the so-called "treasure hunt" element, stocking unexpected items such as original Picasso drawings alongside the usual warehouse club bulk merchandise. Sam's has tried to emulate that success, and recently advertised a one-of-a-kind, $560,000 pink diamond pendant.

Under Turner, Sam's aggressively cut prices to win over small-business customers, but Costco has done a better job of attracting individual shoppers.

"Doug's challenge is to fill the Sam's buying ranks with a strong core of career wholesale merchants with the taste necessary to establish a top-drawer assortment capable of appealing to the individual customer," Buchanan said.

Oppenheimer & Co. analyst Bernard Sosnick said McMillon "was at Turner's side throughout Sam's turnaround" and added that he was confident McMillon could keep the momentum going.

Shares of Wal-Mart slipped 0.2 percent to $49.19 in New York Stock Exchange trading on Friday.