Wal-Mart Beats EPS; Sales Miss

The world’s largest retailer, Wal-Mart Stores, Inc.’s (WMT - Analyst Report) second quarter 2013 earnings of $1.18 per share beat the Zacks Consensus Estimate of $1.17 by a penny and the prior-year quarter’s adjusted earnings by 8%. The second quarter 2013 results were also at the higher end of the company guidance of $1.13 and $1.18 per share. Top-line growth coupled with cost savings boosted earnings in the quarter.

Quarter in Detail

Total revenue of Wal-Mart, the bellwether retailer of a broad assortment of merchandises at economical prices, climbed 4.5% to $114.3 billion (including membership and other income). Organic net sales (excluding membership/other income and impact from acquisitions and foreign exchange) were $113.8 billion, up 4.7% driven by positive same-store sales, or sales from stores open for at least the past 12 months.

However, total revenue missed the Zacks Consensus Revenue Estimate of $115.6 billion. We believe that currency headwinds of $2.2 billion and continued economic pressures could be the reason behind the miss.

Adjusted constant currency consolidated operating income increased 6.4% to $6.8 billion, increasing faster than sales driven by productivity improvements and cost savings.

Segment Details

Walmart U.S.: The segment benefitted from positive same store sales to post net sales growth of 3.8% to $67.4 billion, including the impact of fuel sales which are affected by volatility in fuel prices.

U.S. same-store sales increased 2.2%, which was above the company guidance range of 1% to 2% increase. The retail giant is reaping benefits of growing traffic trends in its stores which has helped the company in posting four consecutive quarters of positive same-store sales. Grocery, general merchandise as well as all geographic business units saw positive same store sales in the quarter.

Walmart International: The segment’s net sales, including fuel sales, currency and acquisitions, increased 6.4% to $32.0 billion. Excluding currency headwinds, international sales would have been up 7.2%. All countries delivered positive same store sales. Adjusted constant currency operating income grew 11.9% to $1.6 billion in the quarter.

Sam’s Club: The segment, which comprises membership warehouse clubs, posted net sales growth, excluding fuel, of 4.6% to $12.5 billion. Sam’s membership income increased 4% in the quarter.

Sam’s Club's comparable sales, excluding the impact of fuel sales, increased 4.2% in the quarter. The same store sales growth was within the guidance range of 4% to 6% and was driven by better quality and innovative merchandises.

Third Quarter Guidance

For the third quarter of 2013, Wal-Mart expects its earnings to range between $1.04 and $1.09 per share, lower than second quarter earnings. In addition, Wal-Mart forecasts U.S. comp sales for the 13-week period from July 28 through October 27 to range between 1% and 3%. It expects Sam’s Club comp sales, without fuel, for this 13-week period to increase in the range of 3% to 5%.

Fiscal 2013 Guidance

For fiscal 2013, Wal-Mart upped its guidance range to $4.83 to $4.93 from prior forecast of $4.83 to $4.93. The current guidance reflects an upside from 2012 levels. The Zacks Consensus Estimate is pegged at $1.06 and $4.92 for the third quarter and fiscal year 2013, respectively.

Our Recommendation

We currently have a Neutral recommendation on Wal-Mart. The stock carries a Zacks #2 Rank (a short-term ‘Buy rating).