Wal-Mart Earnings To Show Recession's Best Friend (WMT, TGT)

Wal-Mart Stores Inc. (NYSE: WMT) is set to report earnings this coming Tuesday morning before the open.  The company already gave an approximate revenues number of $94 Billion.  As you will see below, Wall Street is under what the company already gave for guidance, and it looks like even the highest estimate is right under $93.7 Billion. 

The retail behemoth’s estimates from First Call are $0.75 EPS on $92.44 Billion in revenues.  Estimates for next quarter are $0.81 EPS on $99.7 Billion in revenues, and Fiscal Jan-2009 estimates are $3.44 EPS on $405.27 Billion in revenues.  Wal-Mart already gave its same store sales at +3.2% in April, and it forecast same store sales for May on an ex-fuel basis to come in at 0% to 2%.

Target Corp. (NYSE: TGT) will report earnings the following week.  But last week, the April retail numbers showed a +3.1% reading for same store sales during the month of April.  That was slightly under its planned range.  Target also gave a tepid May forecast with sales projected to be in a range of -1% to +1%.

So why do we compare Wal-Mart to Target?  Target was the real thorn in Wal-Mart’s side from 2002 to 2007.  But the economic environment is working in Wal-Mart’s favor.  As consumers face the pinch from tighter finances, higher fuel costs, and higher food costs, all of a sudden it’s Wal-Mart’s advantage.  That won’t last forever, but that’s how it stands now.

Wal-Mart managed to close marginally up with a $0.02 gain to $57.18 on Friday.  It looks like only 6 other components of the Dow Jones Industrial Average closed up Friday.  Wal-Mart is less than $2.00 from its year highs, and are 35% higher than the 52-week low of $42.09.  The stock is also up almost 21% since the close of 2007.  Analysts have an average price target of about $59.00, so Wall Street is going to have to raise forecasts and estimates or we’ll start hearing about how the stock is almost "fully valued" and the like. 

If those First Call estimates were updated properly, Wall Street is artificially low compared to the revenue projections for this quarter that the company just gave on Thursday.

Jon C. Ogg
May 10, 2008