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Walmart WMT Earnings Good, Target TGT Should Be Better


Wal-Mart Stores, Inc. (NYSE: WMT) posted earnings today that included EPS of $0.88 on revenues of $99.1 billion this morning, beating EPS expectations of $0.83 and revenue estimates of $98.3 billion. The company also guided its second fiscal quarter EPS higher, from $0.88 last year to $0.93-$0.98. Analysts were already expecting EPS for the quarter to hit $0.98. Target Corp. (NYSE:TGT) reports quarterly earnings tomorrow and analysts are expecting EPS of $0.86, up from $0.69 a year ago, and revenues of $15.58 billion, up from $14.83 in the first quarter of 2009.

Not all the Walmart earnings news was good. US same-store sales fell 1.4%, while the average ticket per customer grew slightly. The decline was larger than the company had forecast in February. WMT stock which no longer reports weekly or monthly sales statistics, said it expects same-store sales, excluding fuel sales, for the second quarter to be in a range from -2% to +1%, compared with a decline in the same period a year ago of -1.5%.

The company’s warehouse Sam’s Club stores are expecting a flat second quarter, plus or minus 1%, compared with an increase of 0.6% in the second quarter of 2009.

International sales were up nearly 9% on a constant currency basis, with Mexico, Canada, Brazil, and China leading.

Another nasty surprise came from the company’s report of a negative free cash flow for the quarter. WMT stock defines free cash flow as cash flow from operations minus payments for property and equipment. The company posted -$1.6 billion on that basis, compared with $964 million in positive free cash flow a year ago.

The drop in free cash flow was solely a result of a massive decline in cash flow from operations. In the first quarter of 2009, WMT stock generated $3.57 billion in net cash from operations. This year, net cash fell to $973 million. The majority of the change was due to an increase in inventory, not something you’d normally expect from Wal-Mart’s vaunted inventory control practices.

While Walmart same-store sales have been falling, Target has reported an increase of 2.8% in the recently ended first quarter. It seems that the higher income shoppers that Wal-Mart attracted during the recession have gone back to the old favorites, which include Target. Wal-Mart’s core customers at the lower end of the income scale are still either suffering from high unemployment or worries about future employment prospects.

Somewhat ironically, Wal-Mart’s advertising for the past month or so has focused even more on its low prices as it cut prices on thousands of items. Target, meanwhile, is rolling out new promotions aimed at customers looking to make discretionary purchases. And that seems to be the trend as the economy continues its slow-motion recovery.

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