Earnings season marched on this week and, once again, much of it wasn’t pretty. Wal-Mart Stores Inc (NYSE:WMT) reported its quarterly results yesterday and a miss on both the top and bottom lines resulted in a one-day sell-off to tune of 4% losses for Walmart stock.
As I’ve mentioned a few times already, it’s been a tough earnings season for plenty of companies, with stocks taking a beating for posting even the slightest misses.
And while the 4% fall for Walmart stock may seem shrug-worthy compared to the beatings that Yelp Inc (NYSE:YELP) and LinkedIn Corp (NYSE:LNKD) took — 25% and 21% respectively — the damage is arguably comparable considering Walmart is a slow-and-steady pick as opposed to an up-and-coming tech name.
Walmart, the world’s largest retailer, reported a slight decline in revenue, tallying sales of $114 billion versus analyst expectations of $115.6 billion. That translated to income of $3.3 billion, or $1.03 per share — another year-over-year drop and a nickel short of the analyst consensus.
For the unappetizing cherry on top, U.S. same-store sales also left Wall Street wanting more, rising 1.1% versus the expected 1.5% gain.
This metric was especially problematic in Walmart’s earnings report because the company partially blamed its misses on the negative impact of currency exchange rate fluctuations. WMT, which has 260 million customers in 27 countries, derives approximately 25% of its total sales from foreign markets — making the strong dollar a catalyst for weak earnings.
Of course, domestic same-store sales don’t have forex as a scapegoat, and were thus even more worrisome.
The reason for that decline, Walmart said, was the company’s recent wage increase for workers and costs associated with its e-commerce platform. While that’s respectable, the bottom line for Walmart stock investors is that those headwinds aren’t going anywhere anytime soon.
This entire earnings season I’ve said that I’ve had to be very confident in a company’s potential to feel comfortable owning it or recommending it through the quarterly report — and confidence is hardly what WMT projects for this quarter or for future quarters.
Walmart is expected to be in the red for earnings growth this year and next … and while it sports a slight discount to the broader market in terms of price-to-earnings, it’s pretty clear that shares of Walmart stock are marked down for a reason.
Yesterday’s tumble — the largest of the 30 stocks in the Dow Jones Industrial Average — was just the beginning of what will likely be a couple of rocky, sideways years for the retail giant. The main takeaway from Walmart report? There are better places to stash your money.
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