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Walmart Earnings Preview: Will it Miss?

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Retail giant Wal-Mart Stores, Inc (WMT - Free Report) is set to report its first-quarter fiscal 2014 results on May 16 before the market opens. Last quarter, it posted a 6.37% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Strong top-line growth driven by increase in comparable store sales, productivity improvements, cost savings and lower taxes proved to be Walmart’s strengths in the fourth quarter of fiscal 2013. The company’s efforts to return shareholder value through share buyback also fueled earnings.

Walmart’s fourth quarter earnings of $1.67 per share exceeded the prior-year earnings by 10.6%. Net sales surpassed the prior-year quarter figure on the back of positive same store sales growth. The company also made efforts to reduce operating expenses. In addition, the company has strong international presence and has been expanding its e-commerce business.

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 Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 for this to happen. That is not the case here as shown below.

Zacks ESP: The Earnings ESP is 0.00%.

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

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

Other Stocks to Consider

Here are some other companies in the retail and wholesale sector that can be considered as our model shows they have the right combination of elements to post an earnings beat this quarter:

Harris Teeter Supermarkets Inc , Earnings ESP of +1.47% and Zacks Rank #2 (Buy).

Costco Wholesale Corporation (COST - Free Report) , Earnings ESP of +1.96% and Zacks Rank #2 (Buy).

Saks Inc. , Earnings ESP of +5.26% and Zacks Rank #3 (Hold).

In-Depth Zacks Research for the Tickers Above

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Walmart Inc. (WMT) - free report >>

Costco Wholesale Corporation (COST) - free report >>

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