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Bear of the Day

All is not well at the nation's largest retailer. Wal-Mart Stores (WMT - Analyst Report) has been in the news in the last week but not for a good reason. Just days ahead of its fourth quarter earnings results on Sep 21, e-mails from top management leaked to Bloomberg indicating a bust in February sales.

"In case you haven’t seen a sales report these days, February MTD sales are a total disaster," Jerry Murray, Wal- Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, referring to month-to-date sales. "The worst start to a month I have seen in my ~7 years with the company."

Of course, this could be just one e-mail which was taken out of context.

But many analysts are blaming the expiration of the payroll tax cut at the end of January and for a delay in tax refunds for the alleged lackluster February sales. The 2% increase in the payroll tax is equivalent to about $20 in take home pay a week for the worker making $50,000 a year. This is Wal-Mart's targeted customer base.

Estimates Cut

The analysts were already sour on Wal-Mart even before these latest e-mails leaked. For the fiscal fourth quarter 2 estimates had been lowered in the last 60 days. 2 estimates have also been cut on the coming year, fiscal 2014, which includes the February sales referred to in the e-mails. Wal-Mart has fallen to a Zacks Rank #4 (Sell).

Wal-Mart is facing challenges from the dollar stores including Dollar General (DG - Analyst Report) and Dollar Tree (DLTR - Analyst Report) for shoppers making less than $25,000 a year and from Target (TGT - Analyst Report) for the cost-conscious more affluent shopper.

Earnings are expected to grow 9.5% in fiscal 2013 and 9.5% again in fiscal 2014. That is slightly under its 10-year historic average of 10.4%, which also includes the Great Recession period.

Wal-Mart no longer discloses sales every month. But we'll hear what really is going on, at least over the past few months, on the fourth quarter conference call on Sep 21. Wal-Mart has surprised on the Zacks Consensus Estimate 3 out of the last 4 quarters.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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