Wal-Mart Earnings Preview: Wall Street Expects Good News

Wal-Mart Stores Inc. (NYSE: WMT), the world's largest retail chain, is expected to report higher fiscal second-quarter profit as an increase in consumer spending lifted its revenue and offset the effect of a strong dollar.

The Bentonville, Ark., company, which discloses results of the May-through-July period on Thursday before markets open, is expected to report a 5.5 percent increase in earnings per share to $1.17 and a 7 percent rise in net sales to $115.56 billion over the year-earlier period, according to a Reuters survey of analysts.

Wal-Mart's earnings trajectory has been positive for several quarters as U.S. consumers continue spending.

The company is expected to beat results of its 2012 fiscal first-quarter when it generated $111.2 billion net sales and returned $1.09 per share, about five cents above market expectations, and three to eight cents above the company's guidance for the quarter. Revenue in the February-through-April quarter grew 6 percent while operating profit grew 8 percent year-on-year, the best growth since the start of the 2008 economic downturn.

If recent history is any indication, Wal-Mart could exceed estimates, as it has for four of the previous five quarters.

"Despite high unemployment, and political and fiscal uncertainty, consumers are spending again, albeit cautiously," said NRF Chief Economist Jack Kleinhenz in response to Tuesday's July retail sales report from the U.S. Commerce Department.

"Retail sales continue to remain resilient in the face of bleak international news, with retailers on track with sustained sales growth year-over-year and year to date. Retail sales will continue to see modest growth in the fall and winter."

That growth has led analysts to expect Wal-Mart to boost its fiscal 2013 outlook. For example, Standard & Poor Capital IQ expects the company to increase its earnings-per-share estimate for next year by as much as $1.23 per quarter.

"We look for management to raise its FY13 EPS guidance, currently $4.72-$4.92, when it reports on Thursday," said a note from Standard & Poor's Capital IQ. The Reuters consensus for earnings per share this year is $4.84 to $5.09.

The current uncertain economic sentiment, stemming partly from a tepid recovery from the recession that has GDP up an estimated 1.5 percent in the second quarter, has price-conscious consumers seeking out the lower-cost goods that Wal-Mart is known for.

Wal-Mart has been moving forward with its Express brand of small neighborhood grocery stores, keeping in line with a general retail trend toward reducing the size of big-box showrooms. It's also an attempt to challenge competitors like Dollar General Corp. (NYSE: DG) that have long eschewed big showrooms and which have been nipping at the margins of Wal Mart's growth with its ability to open up localized storefront in more densely populated urban areas.

"We believe the company is well positioned to benefit both from increased demand due to merchandise improvements in domestic stores and a focus on operations in international markets," said a note from Standard & Poors.

Key to this international expansion is China.

Wal-Mart recently gained Chinese regulators' approval to expand its stake in Chinese e-commerce company Yihaodian from 18 percent to 51 percent.

The company has seen its stock price gain over 25 percent in the past 90 days. On July 30 a share of Wal-Mart hit an all-time high of $75.24 before paring those gains.

Wal-Mart shares rose one cent Tuesday to $74.02 in after-hours trading.