Wal-Mart Stores upped its forecast for annual earnings this week after its second-quarter results. But did Wall Street react to Wal-Mart’s numbers? And how do analysts view the outlook for the retailer?
Janney Montgomery Scott analyst David Strasser
“Grocery comparable sales were up in the low-single digits as Wal-Mart expanded its fresh food offerings and introduced more SKUs across the food category. Inflation of 350 basis points helped the comp. Strong trends continue at Sam’s Club: The segment reported second-quarter comparable-store sales growth, excluding gas, of 5% ahead of our estimate. Both ticket and traffic accelerated – up 260 basis points and 240 basis points respectively. The improvement in ticket is attributable to multiple in-store initiatives that helped product categories such as fresh food (high single-digit comp) [and] grocery.
“International sales grew 16.2% (7.1% in local currency) ahead of our 10% estimate. This was helped by a positive Easter shift, and benefit from the royal wedding in many countries, partly offset by difficult World Cup compares. Although all countries, excluding Japan, had positive comparable-store sales, we are concerned about negative traffic in these markets. We understand the rationale for more mature countries, but soft traffic in emerging countries needs more attention. We continue to question the wisdom of aggressive growth internationally, and remain perplexed by increased investment in both mature and emerging countries as timing and magnitude of returns remains unclear.”
Sanford C. Bernstein senior analyst Colin McGranahan
“Wal-Mart’s second-quarter adjusted earnings per share of $1.12, excluding around three cents from various charges, came in ahead of our estimate and consensus of $1.08. However, a lower than expected tax rate contributed around three cents to EPS. Overall topline results were in line with our expectations, as faster international growth offset slower than expected progress for the core US division.
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By GlobalData“The rate of improvement for US comps remains sluggish. The domestic comp decline of 0.9 (traffic down, average ticket up) was moderately short of consensus of a fall of 0.5% and our forecast of -0.2%. Management continued to highlight the economic pressures facing its core consumer and noted that trends improved sequentially each month of the quarter. However, Q2 comps showed little improvement versus the 1.1% decline in Q1, particularly given expected benefits from the add-back of SKUs and building inflation. International revenues grew 7.1% (constant FX) in Q2, a modest improvement versus the 6.2% increase in Q1 but generally in line with trends over the past year.”
William Blair & Co. analyst Mark Miller
“While Wal-Mart US comps declined for the ninth straight quarter, management indicated that comps turned positive in July, and the company sounded optimistic based on trends in early August. It is difficult to know for certain how much of the recent comp improvement at Wal-Mart US is internally driven and how much is due to lower gas prices (down $0.40/gallon since May 2011). We have found that a $0.50/gallon decline in gas prices has historically corresponded to a 1.5 percentage-point lift to Wal-Mart’s comps.
“Food and health/wellness continued to generate positive US comps. Hardlines showed an improved trend, with comps down in the low single-digits, highlighted by improved performance in sporting goods (helped by an expanded assortment). Conversely, apparel, home, and entertainment experienced comp declines in the mid-to-high-single digits.”
Barclays Capital analyst Robert Drbul
“This quarter was widely indicative of Wal-Mart’s ongoing focus on the productivity loop. Gross margins were down ten basis points, as expected, as Walmart US appears to be focused on widening the price gap again, driving expenses and prices lower, to drive higher traffic to stores. August month-to-date results indicate an ongoing improvement in sales trends and provide us with increased confidence in Wal-Mart’s ability to achieve positive comp results in the US by the end of the year.
“By merchandise category, all business units in the US saw improvement in Q2, except entertainment, with comp gains again in grocery and health and wellness. Grocery comps increased low-single digits with food driving traffic to stores. Grocery inflation was approximately 3.5% in the quarter. Consumers continue to trade down to lower price points and smaller pack sizes.”