Retail
Macro Trends, Weather Too, Expected to Weigh on Walmart Earnings
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It is no secret that the weather has been bad enough in the Midwest and Northeast that it is impacting retail sales in a negative manner. Now we are getting a real look at what to expect when it comes to retail sales and earnings
The research outfit Retail Metrics sent out a pre-earnings report which also covers Wal-Mart Stores Inc. (NYSE: WMT). Walmart reports on Thursday morning and it gave guidance in the range of “at or below $1.60 to $1.63 in earnings per share” versus a prior target of $1.65 per share. The report warns:
It has been well publicized that Holiday 2013 was a rough one for the retail industry. Margins were pressured by intense price competition from both brick and mortar and online rivals. Fourth quarter earnings expectations have steadily ratcheted lower since the fall as a spate of retailers issued earnings warnings in conjunction with both the third quarter of 2013 earnings and 2013 holiday sales releases. A shortened Holiday shopping season coupled with adverse weather conditions only exacerbated the problematic promotional environment.
Another issue is that retail layoffs in January were particularly high, due to a number of retailers having announced recent store closures. How strong can that be for retail sales growth?
The Retail Metrics Earnings Index of 122 retailers is now projected to see 5% year-over-year earnings decline in the fourth quarter. If a 5% drop sounds extreme to you, it would mark the worst quarterly retail earnings performance dating back to the second quarter of 2009 (when retail earnings plummeted 6.7% and 10.1% excluding Walmart).
Bad retail earnings are being magnified because the S&P 500 fourth quarter earnings of 2013 was 8.3%. This just makes the retail numbers look that much worse, as the index earnings growth was higher than that of retail for the first time in two years. Retail earnings had exceeded S&P 500 earnings on average by 370 basis points over the previous 7 quarters.
There were many headwinds other than just the bad weather. Retail Metrics showed the headwinds impacting this holiday season as follows:
As we have always said, retail is a tricky business. It is one thing to have your entire concept as a new business model twice or three times per year. It is something else when people simply have to stay in to avoid the freezing snow storms.
Walmart shares were down by 0.8% at $74.72 in the final minutes of trading on Wednesday. The stock’s 52-week range is $68.30 to $81.37, and the consensus analyst price target is up at $82.32.
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