Wall Street expects weaker earnings and comp sales from Wal-Mart 

Wal-Mart Stores has been known to surprise Wall Street on occasion but when the retail giant reports its fiscal 2016 first quarter earnings on Tuesday (May 19) consensus is there won’t be much to celebrate.

The average earnings per share estimate is $1.04, which would be 5.4% shy of last year’s earnings, according to 26 analysts who follow the retailer’s financial performance.

Veteran analyst Water Loeb, of Loeb Associates, expects disappointing results from Wal-Mart Stores. He said the retailer is not the store of choice for too many. He expects a 1% to 2% increase in Wal-Mart’s sales citing ongoing difficulties in gaining momentum this year, despite new management and investments in e-commerce.

Wal-Mart recently guided downward with its first quarter earnings per share forecast which is between 95 cents and $1.10. The retailer noted in the previous earnings statement that its decision to invest $1 billion annually in pay raises and for its U.S. store employees and additional investments in e-commerce would trim earnings by as much 26 cents to 29 cents per share.

Loeb is not alone in his assessment as much of the retail sector has been sluggish in the quarter (February through April) as reported retail sales across the board have been weaker than expected despite lower gasoline prices.

"There is no denying that the lack of evidence of a pick-up in consumption growth is disappointing given the boost to purchasing power from lower energy prices," Capital Economics' Paul Ashworth said. "But even though we haven't seen it feeding through yet, we do still expect to see that acceleration soon.”

Walmart U.S. CEO Greg Foran also previously forecast bottom line pressures this year, noting that it’s going to take time to improve overall performance. His agenda to boost financials includes improved customer service, store experience, fresh quality and improved values in private label products.

Wal-Mart forecast U.S. comparable sales growth between 1% and 2% in the first quarter. The same was predicted for Sam’s Club.

Stephens Inc. analyst John Lawrence expects comp sales at the low end of that guidance at 1% for Walmart U.S. and Sam’s. Lawrence does see some upside in the stock giving it a target price of $97. He also predicts first quarter earnings per share of $1.03 at the lower end of the guidance, but believes the retailer may gain some momentum in future quarters.

Raymond James & Associates analyst Budd Bugatch predicts earnings per share of $1.03. He recently downgraded his prediction from $1.11 following cautious sentiment from management during the earnings call in mid-February. He also cites the $10 billion drag Wal-Mart anticipates this year from currency exchange rates against a stronger U.S. dollar as an impact to earnings.

Wall Street expects Wal-Mart’s total consolidated revenue to top $116.32 billion, up 1.2% from the year-ago period.

Stacey Widlitz, founder of SW Retail Advisors, and CNBC retail contributor, expects a weakened cycle for the retail sector citing tough comps from Macy’s and Costco, which had been the stars in recent quarters. She said among retailers who do muster decent comp sales like J.C. Penney, there is evidence of shrinking margins and pressures on top and bottom lines.

Widlitz said margins and internal costs will be something to watch among retailer earnings. She also said the overall retail pie is not growing so there are more efforts to steal market share which lends to promotional pricing and even more pressure on margins.

Investors have also steered clear of Wal-Mart shares (NYSE: WMt) in recent weeks as the retail stock price is down 8.89% year to date. At Wednesday’s closing price of $78.16, shares were down 9.07% in the past three months. The share price is up 1.73% from a year ago. 

Against the composite Dow Jones Industrial Average Wal-Mart shares have been the lagger. The Dow Jones Industrial Index is up 1.33% year-to-date. Over the last three months the composite index is up 0.07%. Compared to a year-ago the composite value rose 9.81%.