Wal-Mart Stores Inc (NYSE: WMT) To Release Q2 Earnings Tomorrow

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By Mark Michaels on August 14, 2014 Company, Consumer Staples

The world’s largest retail corporation will announce its quarterly earnings report for the second quarter of 2014 tomorrow, Thursday August 14^th. Wal-Mart Stores Inc (NYSE: WMT), based in Bentonville, Arkansas, is expected to post not so stellar results tomorrow, despite the retail sector’s acceptable performance and the slow but steady recovery of the United States economy. The following points are what could happen during Wal-Mart’s call tomorrow.

Increase in Revenues

The consensus estimate from analysts is that Wal-Mart will pull revenues of $119 billion for this quarter, which would be an increase of 1.8 percent from the $116.9 billion posted in the same quarter one year ago. The company believes that its same-store sales in the United States will show little to no growth during the second quarter in 2015. This means that the company will have improved during the second quarter of 2014. This quarter, comparable store sales have declined by 0.3 percent as well.

Last quarter, the retail sector in the United States shows significant improvement. Sales were expected to improve even further due to the sales driven by the Fourth of July weekend. However, the majority of the improvement in sales was attributed to the increasing preference for online shopping, which shows that traffic to physical stores are declining.

For Wal-Mart, the lack of foot traffic is a major issue. The company pulls roughly 95 percent of its sales through sales from its physical stores. Also on the hot plate are stores like Target Corp (NYSE: TGT) and Bed, Bath & Beyond Inc (NASDAQ: BBBY), both of which also generate 95 percent of their revenue from physical store sales and are feeling the squeeze.

In an effort to capture more shares of the market and increase its sales figures, Wal-Mart has executed a new plan to open smaller stores in certain neighborhoods in the United States, such as the Wal-Mart Neighborhood Market stores. This plan could yield profitable results for the company, which typically does not focus on catering to locality based customers. So far, the retail giant is operating thirteen Neighborhood Markets, and plans to open several more small stores and Supercenters in 2015. By opening smaller stores, Wal-Mart increases its accessibility for customers, and could increase the company’s revenues.

Wal-Mart has also made considerable efforts to expand its customer base in the United States through expansion. However, it may need to redesign its strategy at the threat of competing stores like Dollar Tree Inc (NASDAQ: DLTR) and Family Dollar Stores Inc (NASDAQ: FDO).

Wal-Mart’s Bottom Line Could Plummet

While the retail giant’s revenues have the possibility of increasing, its earnings could fall. For this quarter, the company predicts that it will hit a earnings per share range of $1.15 to $1.25, which means that its EPS dropped 3.2 percent year over year.

Costs could rise, due to the company’s investments in e-commerce, the membership programs of its discount warehouse store Sam’s Club, and the increasing health care costs in the United States.

However it is important to note that the company has a history of buying back shares Last quarter, Wal-Mart spent $626 million to repurchase 8 millions shares. Further share buybacks could give the company some leeway in its earnings per share.

Conclusion

As Wal-Mart prepares to announce its earnings report, investors will be eagerly waiting to see how the compare does in the second quarter. While it is preparing to release a mixed report with growing revenues but shrinking earnings, investors are still attracted to the company due to its considerable generation of free cash, share buybacks, and dividend payouts.