Expect Wal-Mart Sales To Be Better, But Another Quarter Of Declining Earnings Likely

MKM Partners expects another earnings drop from Wal-Mart Stores Inc (NYSE: WMT) when the retail giant reports on February 21.

Analyst Patrick McKeever expects results to continue to be lackluster despite expressing confidence in Wal-Mart's ability to hit numbers than most retailers, given its grocery penetration and low exposure to apparel.

Analyst's Commentary

McKeever sees only slight comp growth and continued earnings pressure from price investment as billions of dollars planned over the next several years toward incremental wages/training and e-commerce.

For the fourth quarter, the analyst projects EPS of $1.31 versus the Street's $1.29 and an adjusted $1.49 in the same quarter last year. The analyst also expects a 1.3 percent increase in same-store sales at both Wal-Mart and Sam's and sees flattish International sales.

“We look for slight increases in both store traffic and ticket and think the impact to food comps from deflation moderated from 3Q16's (100) bps,” McKeever wrote in a note.

Related Link: Wal-Mart CEO Issues 3 Predictions For The Future Of Retail

Meanwhile, the analyst expect Jet.com to remain a focal point for investors as Wal-Mart integrates the business and implements some Jet.com elements across its global ecommerce portfolio.

For the first quarter, McKeever forecast a slight sequential deceleration in Wal-Mart's comps, to 1.0 percent as the delay in tax refunds could result in a smaller net benefit to sales.

MKM's Bottom Line

“[T]he later the funds flow, the less tends to go to retail by our estimation,” McKeever elaborated.

In addition, the analyst anticipates modest EPS decreases through the first three quarters of FY 2017 and a slight increase in the fourth quarter of 2017. For FY 2017, the analyst expects EPS of $4.30 (prior $4.36) versus guidance of relatively flat with FY 2016.

As such, McKeever maintains his Neutral rating saying the “stock reflects a relatively balance risk/reward.”

At last check, shares of Wal-Mart were up 0.29 percent to $69.07. The analyst has a fair value estimate of $72.

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