Walmart Earnings Up, But WMT Cuts Q4 Outlook

Walmart (WMT) was set to open lower Thursday morning on a relatively disappointing third-quarter earnings report. Walmart earnings were 2.8% higher for Q3, but the company noted a “sales shortfall” as consumers spent less in their stores. In addition, fourth-quarter profit guidance was well below analyst projections, and WMT cut its outlook for the full year. WMT stock was down about 1% in pre-market after the news.

Walmart earnings Q3Walmart earnings were reported as $3.74 billion, or $1.14 per share for the three-month period ending Oct. 31 — better than the year-ago period’s $1.08 per share, and a penny above analyst expectations. Consolidated net sales for WMT were 1.7% higher from a year ago to $115.7 billion, but still short of Wall Street’s $116.8 billion mark.

However, U.S. same-store sales were down 0.3%. Meanwhile, Walmart earnings for the fourth quarter are now forecast to be in a range of $1.50 to $1.60, short of expectations for $1.69, and full-year earnings are slated for $5.01 to $5.11 (or $5.11 to $5.21 after adjustments). WMT cited a “competitive retail environment” for its lower-than-expected quarterly revenue, and a reduction in the number of store visits by its customers.

The bad news for WMT stock didn’t stop there, however.

Walmart expects comparable-store sales growth for the quarter ending Jan. 31, 2014, to be “relatively flat,” and for its Sam’s Club wholesale stores to range between flat and 2% higher. About 50 Walmart stores in Brazil and China had recently been closed.

As you can see from the accompanying weekly chart, WMT stock has been on a tear over the last month — up more than 10% since putting in a bottom at $71.50 on Oct. 7 — and recently took resistance from August at $78.50. The long-term trend is definitely higher, as WMT stock has risen more than 68% from its low in August 2011. Each time this year shares have pulled back to their 50-day moving average, WMT stock has bounced off it nicely and moved higher.


In my view, today’s mixed earnings report is but a temporary setback for the Bentonville, Ark., retailer.

Walmart’s competitors include a host of low-cost retailers, including Dollar Tree (DLTR), Dollar General (DG) and Family Dollar (FDO), as well as other big-box stores like Costco (COST) and BJ’s. And of course, Target (TGT) is the one retailer most like WMT.

But Walmart is still the world’s discount retailing king.

Prior to the Walmart earnings report, WMT stock was trading at just more than 15 times earnings of $5.14 per share, and boasted a 2.4% dividend yield. So while neither the valuation nor dividend are particularly scintillating, they’re good enough that any quick discount could prompt some buying.

I would expect WMT stock to continue its steady ascension over the months ahead. However, the holiday season could be a tough one for Walmart, as there are six fewer shopping days than normal, and the competition could force WMT to offer more aggressive sales incentives for its shoppers. A continuation of the lower gasoline prices seen over the past few months also might provide a bump for the holiday season and show up in the next Walmart earnings report.

As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.

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