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Will Walmart (WMT) Earnings Disappoint Investors Yet Again?

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Wal-Mart Stores Inc (WMT - Free Report) is set to report second-quarter fiscal 2015 results before the opening bell on Aug 14. Last quarter, this retail giant posted a negative surprise of 1.74%. Let’s see how things are shaping up prior to the announcement.

Factors to Consider

Walmart has not had the best of times of late, as the company delivered weak results for five consecutive quarters due to declining comparable store sales owing to a highly volatile retail sales environment and weakness in international markets.

In the last quarter, the retail giant’s earnings also declined year over year due to softer comps and high direct costs related to harsh weather conditions. Revenues increased only marginally due to unseasonably cold and disruptive weather and currency headwinds. A challenging retail environment in the U.S. as well as in most international markets due to cautious consumer spending also hurt the top line in the quarter, despite growth in the e-commerce business.

Walmart International has also been witnessing weakness in Mexico, Brazil and China. Walmart’s international revenues grew by a mere 1% in fiscal 2014. We anticipate economic strains in the U.S. and abroad to likely pressurize its low-income shoppers in the upcoming quarter and fiscal 2015 as well. The company also expects macro-economic headwinds like reductions in government benefits, higher taxes, tighter credit and higher group health care costs to impact results in fiscal 2015.

For the second quarter of fiscal 2015, Walmart expects its adjusted earnings to range between $1.15 and $1.25 per share. Walmart expects U.S. comp sales to be relatively flat for the 13-week period ending Aug 1, as against a decline of 0.3% last year. Sam’s Club comp sales, without the impact of fuel sales, are expected to remain flat compared to a 1.7% increase last year. The company expects second-quarter tax rate to be at the higher end of the full year forecasted range of 32%-34%. The Zacks Consensus Estimates are also showing declining trend over the past 7 days for the upcoming quarter and fiscal 2015.

Earnings Whispers?

Our proven model does not conclusively show that Walmart is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP:The ESP for Walmart is 0.00% as both the Zacks Consensus Estimate and the Most Accurate estimate stand at $1.15 per share.

Zacks Rank #3 (Hold):Walmart’s Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Other Stocks to Consider

Other stocks in the retail sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Supervalu Inc (SVU - Free Report) , with an Earnings ESP of +9.09% and a Zacks Rank #3 (Hold).

Inventure Foods Inc. , with an Earnings ESP of +5.56% and a Zacks Rank #3.

Kohl’s Corp (KSS - Free Report) , with an Earnings ESP of +1.87% and a Zacks Rank #3.

In-Depth Zacks Research for the Tickers Above

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Walmart Inc. (WMT) - free report >>

SUPERVALU INC. (SVU) - free report >>

Kohl's Corporation (KSS) - free report >>

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