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Wal-Mart Stores, Inc. Q4 Earnings Preview: What To Watch

 February 20, 2013 10:00 AM
 


(By Mani) Wal-Mart Stores, Inc. (NYSE: WMT) is expected to report higher earnings on better expense management when it reports fourth-quarter financial results on Feb.21.

Results of Wal-Mart, a Dow component, could give an idea about the performance of the retail industry as it operates more than 10,000 retail units in 27 countries.

Retailers such as Wal-Mart are operating in weak macroeconomic conditions that are curtailing customer spending. Moreover, it faces strong competition from other discount, department, drug, dollar, variety and specialty stores, warehouse clubs and supermarkets.

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Wall Street expects earnings of Bentonville, Arkansas-based retail giant at $1.57 a share, according to analysts polled by Thomson Reuters. The consensus view implies an increase of 9 percent from last year, when it earned $1.44 a share. The company sees fourth quarter fiscal 2013 earnings per share from continuing operations of $1.53 to $1.58.

Wal-Mart's earnings have managed to top analysts' estimates thrice in the past four quarters. However, the beat margin for the past two quarters stand at 0.9 percent, or 1 cent. This indicates that the company's earnings may meet or beat Wall Street view.

Quarterly sales are expected to increase 4.6 percent to $128.85 billion from $123.17 billion in the same quarter last year.

Generally, retailers generate more than 30 percent of their annual sales from the final three months of the year due to the holiday season and has certain key events such as Thanksgiving Day, Black Friday and Christmas.

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Investors will be looking at how Wal-Mart fared in the holiday season by looking at quarterly comparable store sales, a key retail metric, and comments over foot traffic. U.S. comps are estimated in the range of 1.5 to 2.5 percent. Of late, the international division is making up for the weak performance in the U..S division.

The company projects comparable store sales growth for the quarter at Walmart U.S. of 1 to 3 percent and at Sam's Club, without fuel, of 1.5 to 3.5 percent.

Since Wal-Mart sells goods at lower prices, investors and analysts are expected to watch the margin numbers – both gross and operating. Gross margin indicates the profit on sales while operating margin shows whether the company has managed to have a lid on costs in this tough operating environment.

Inventory is another key metric for retailers. If past inventory are not disposed, then it is a sign of worry for the company as it indicates that sales have not met expectations.

Last but not the least, outlook comments for the full year would be watched closely as the consumer spending may hurt due to an uptick in gasoline prices, the ending of the payroll tax benefit, and higher taxes and healthcare costs. Recent media reports say that the retailer had the worst sales start to any month in seven years in February, suggesting that the outlook would be on the lower side.

For the third quarter, Wal-Mart's profit grew 9 percent and beat Street, but revenue came in short of estimates. The company earned $3.64 billion or $1.08 per share for the third quarter, higher than $3.34 billion or 96 cents per share in the year-ago quarter.

Walmart's revenues for the quarter increased 3.4 percent to $113.93 billion. Total comparable store sales grew 1.7 percent. Constant currency sales grew 4.9 percent to $114.9 billion.

For the full-year 2012, analysts are expecting earnings of $4.92 per share on revenue of $470.08 billion.

Shares of Wal-Mart, which has a market cap of $230 billion, has been trading between $57.18 and $77.60 during the past 52-weeks. They trade 14 times its 2013 consensus earnings estimate.

Out of the 26 analysts covering the stock, 11 of them rate the stock as a "buy" or "strong buy," while 14 analysts recommend "hold." One analyst has a "sell" rating on the stock.

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