Wal-Mart Analyst Wrap

Wal-Mart Stores Inc. WMT reported their third quarter earnings this morning. Walmart reported Q3 EPS of $1.14 versus the estimated $1.13, up 6% from 3Q12. Revenue came in slightly below estimates at $115.69 billion and sales were up 2% YoY. The company narrowed FY2013 guidance from $5.10-5.30 to $5.11-5.21 and projected current-quarter earnings of $1.60-1.70 per share versus analysts' estimate of $1.69. Goldman Sachs analyst Mathew Fassler noted that US same-store-sales fell 0.3% compared with Goldman's forecast of a 0.2% increase. Further, EBIT exceeded the analyst's expectations partially due to a higher member fee income. Fassler commented, "We view these results as higher-quality than the headline print would suggest, with good progress on controllables, and a relatively healthy sequential sales trend within the quarter." Greg Melich, an ISI analyst, reported that Wal-Mart's 3Q results reflects the impact on tax increases, lower consumer malaise and lack of inflation. ISI noted that the flat holiday outlook and traffic decline emphasizes the fiscal drag on their low income shoppers. Melich wrote, "The key debate will be if Walmart can turn traffic and comps positive next year as cycling the 2% payroll tax holiday helps, but ACA headwinds and SNAP are partial offsets. Gross margins have been up 4 straight quarters even as traffic declines, suggesting the productivity loop initiative is still stuck in neutral." Bank of America analyst Robert Ohmes also iterated that the updated guidance reflects a challenging global consumer environement. The analyst maintained his buy rating and commented, "While the payroll tax impact should continue in 2H13, we believe the outlook for WMT's core customer is stable given falling gas prices y/y and unemployment has improved. Our favorable view of WMT continues to reflect: 1) WMT's US growth outlook remains supported by a combination of sq ft growth (+2-3% in F13 & F14E), EDLP focus and commitment to a broadened & more locally relevant merchandise assortment; 2) improving profit outlook supported by goals to continue generating SG&A leverage globally (we believe WMT remains on track to lower its SG&A ratio by 100bps or more over the next 5 yrs); 3) continued progress in global eCommerce (est. >$9Bn in F14) supported by a wide product assortment, global technology platform, mobile investments, & development of a next generation fulfillment network; and 4) Sam's Club's solid outlook following the recent national membership fee increase and continued membership growth." Wal-Mart Stores closed at $78.90 on Wednesday and is currently trading +0.33%.