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Will Walmart (WMT) Disappoint This Earnings Season?

Zacks Equity Research

Wal-Mart Stores Inc (WMT) is set to report first quarter fiscal 2015 results before the opening bell on May 15. Last quarter, this retail giant posted a positive surprise of 0.63%. Let’s see how things are shaping up prior to the announcement.

Factors to Consider

Walmart has not had the best of times of late, as the company delivered weak results in all the four quarters of fiscal 2014 due to declining comparable store sales, weakness in the international markets and bribery allegations.

Though the retail giant’s earnings and revenues in the last quarter managed to meet the consensus mark, earnings declined year over year due to softer comp sales. Weak consumer spending environment, especially during the holiday season, hurt comps in the quarter. Holiday profits were also eroded by severe winter storms, increased competition and reduced food-stamp benefits for millions of Americans. Moreover, comps also declined in the first two weeks of February owing to winter storms that closed more than 200 stores – suggesting a weak start to the first quarter of 2014.

Walmart International has also been witnessing sluggish comps for the past few quarters owing to weakness in Mexico, Brazil and China..Walmart’s international revenues grew by a mere 1% in fiscal 2014. We anticipate economic strains in the U.S. and abroad to likely pressurize its low-income shoppers in the upcoming quarter and fiscal 2015 as well.

For the first quarter of fiscal 2015, Walmart expects its adjusted earnings to range between $1.10 and $1.20 per share compared with $1.14 per share in the year-ago quarter. Walmart expects U.S. comp sales to be relatively flat for the 13-week period ending May 2, as against a decline of 1.4% last year. Sam’s Club comp sales, without the impact of fuel sales, are expected to remain flat compared to a 0.2% increase last year.

The company expects macro-economic headwinds like reductions in government benefits, higher taxes, tighter credit and higher group health care costs to impact results in fiscal 2015.

Earnings Whispers?

Our proven model does not conclusively show that Walmart is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:The Expected Surprise Prediction or ESP for Walmart is 0.00% as both the Zacks Consensus Estimate and the Most Accurate estimate stand at $1.15 per share.

Zacks Rank #4 (Sell):We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Foot Locker Inc (FL), with an Earnings ESP of +1.91% and a Zacks Rank #2 (Buy).

The Kroger Co. (KR), with an Earnings ESP of +0.95% and a Zacks Rank #2.

Estee Lauder Companies Inc. (EL), with an Earnings ESP of +1.82% and a Zacks Rank #3.  

Read the Full Research Report on WMT
Read the Full Research Report on KR
Read the Full Research Report on EL
Read the Full Research Report on FL

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