Wal-Mart expected to report slower growth

Wall Street anxiously awaits word from Wal-Mart Stores Inc. before the sunrises on Thursday (May 16) for a glimpse into the overall health of the U.S. economy.

The retail giant is expected to report slower growth from softer consumer spending among its core U.S. business while also holding back on expansion abroad.

Before the market opens on Thursday, Wal-Mart will report earnings from its first quarter of fiscal 2014, which ended April 30. The street consensus is $1.15 per share or $3.78 billion in net income for the quarter. This would be a 5.5% gain in net profits from the $1.09 per share pocketed a year ago.

Total sales revenue is expected to top $116.4 billion, up 3% from $113 billion in the same quarter last year.

Budd Bugatch, analyst with Raymond James & Associates, said his estimate for same-store sales among the retailer’s U.S. business is -0.2%, which factors in a slightly positive comparable number for Sam’s Clubs. He said there have been a few notes of caution in terms of domestic demand during Wal-Mart’s first quarter, most notably was Target’s negative sales and earnings per share pre-announcement on April 16 in which comparable sales were expected to range from 0 to 2%.

Retailers in general have cited poor weather in March for weaker overall sales, despite better preliminary reports from April.

“We believe Wal-Mart will be ‘swimming upstream’ in the first quarter and any potential upside to published estimates will likely come from expense control rather than better demand,” Bugatch noted.

While other major retailers also report earnings this week, none carry the weight of Wal-Mart whose 140 million weekly shoppers comprise roughly 10% of the nation’s total retail sales.

Analysts said after a delay in tax refunds led to a slower start in February, Wal-Mart, like other retailers, also faced colder weather over the past two months that hurt sales of warm-weather merchandise and garden supplies.

“We are concerned that soft sales continued into March and April,” said Citigroup analyst Deborah Weinswig, who removed Wal-Mart from Citi’s top picks list. “We believe the impact of higher payroll taxes became a significant headwind.”

But she also noted falling gasoline prices over the past few months provided some relief to cash-strapped consumers. Weinswig estimates the company’s first-quarter same-store sales fell 0.3%, hurt by a 0.5% drop at U.S. stores and a 0.5% gain at Sam’s Club.

She estimates lower gross margins as the world’s largest retailer cut prices to lure shoppers. Bugatch also noted that Wal-Mart posted lower price points than it’s Florida competitors (Target and Publix)  in the recent quarter, which could mean compressed margins.

Other analysts see a glass half full, as Daniel Binder of Jefferies & Co. predicts Wal-Mart’s sales were virtually a repeat of the year-ago results. He has a “buy” rating on the stock with a 12-month target price of $90.

Wal-Mart shares were trading at $78.58, up 8 cents in the early afternoon session today (May 14). For the past 52 weeks the share price has ranged from $58.95 to $79.50. Analysts do agree if Wal-Mart exceeds expectations the stock will likely break through the $80 barrier.