Wal-Mart Stores Inc
) is set to report fourth quarter fiscal 2014 results before the
opening bell on Feb 20. Last quarter, this retail giant posted a
positive surprise of 0.88%. Let's see how things are shaping up
prior to the announcement.
Factors to Consider
Walmart has been facing severe challenges since the last few
quarters related to the restructuring of Sam's Club unit in the
United States, food safety allegations, and weakness in the
emerging markets, including the closure of stores in Brazil and
China. In fact, Walmart delivered weak results in all the three
quarters of fiscal 2014 and slashed its guidance for fiscal 2014
on Jan 31. This leads us to believe that the problems are indeed
For the fourth quarter, Walmart expects its earnings to be at
or slightly below the low end of its previous forecast of $1.60
to $1.70 per share. For fiscal 2014, Walmart expects its earnings
to be at or slightly below the low end of its previous forecast
of $5.11 to $5.21 per share.
In addition, the retailer expects its fourth-quarter
comparable store sales for its Walmart U.S. and Sam's Club
segments to be slightly below its prior forecast. Lower comp
sales could be attributed to reduced food stamp benefits under
SNAP (the U.S. government Supplemental Nutrition Assistance
Program) for millions of Americans and unfavorable weather
conditions, which resulted in store closures.
A challenging retail environment in the U.S. as well as in
most international markets due to cautious consumer spending has
been hurting the company's top line. The economic strains in the
U.S. and abroad are likely to pressurize its low-income shoppers
in fiscal 2015 as well.
Walmart International has also been witnessing sluggish comps
for the past few quarters owing to a weak consumer spending
environment and changing consumer patterns. The unit is also the
focus of a costly bribery probe. Moreover, it closed about 50
underperforming stores in Brazil and China last year,
anticipating sluggish growth in the Brazilian market for the
fourth straight year.
Moreover, recently, Walmart announced that it is eliminating
2300 employees, including assistant managers and some hourly
workers at its Sam's Club warehouse division in an effort to
streamline its business structure. We believe the layoffs
announced across the board in the retail sector were the result
of weak holiday season sales.
Though we are positive on the company's sound long-term
fundamentals, the current scenario is alarming for its
Not only Walmart, other retailers like
), hhgregg Inc and GameStop Corp also trimmed their
guidance due to a weak holiday season.
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
and a Zacks Rank of #1, 2 or 3 for this to happen. That is
not the case here as you will see below.
Negative Zacks ESP:
The Expected Surprise Prediction or ESP for Walmart is -0.63% as
the Zacks Consensus Estimate of $1.60 is higher than the Most
Accurate estimate of $1.59 per share.
Zacks Rank #3 (Hold):
Walmart's Zacks Rank #3 when combined with a negative ESP of
-0.63% makes surprise prediction difficult.
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
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
), with an Earnings ESP of +8.00% and a Zacks Rank #2 (Buy).
Finish Line Inc
), with an Earnings ESP of +2.35% and a Zacks Rank #2.
FINISH LINE-CLA (FINL): Free Stock Analysis
FOOT LOCKER INC (FL): Free Stock Analysis
KOHLS CORP (KSS): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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