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By Todd McDonald

Overview

Wal-Mart Stores (NYSE:WMT) is scheduled to report 2Q 2014 earnings before the opening bell on Thursday, August 15. The release is typically available at 7:00 a.m. EST. Results from the world's largest retailer and constituent of the Dow Jones Industrial Average tend to heavily influence the direction of the equity index futures.

Outliers & Strategy

  • Earnings Per Share from Continuing Operations: The value for this measure is most often the figure that compares with consensus estimates. If an EPS from Continuing Operations is unavailable, GAAP EPS will be the comparable value. Wal-Mart indicated back in May it expects 2Q 2014 diluted earnings per share to range between $1.22 and $1.27. The current Street estimate is for $1.25. (Source: Yahoo! Finance).
  • Earnings Per Share Guidance (3Q 2014): This is a crucial forward-looking measure for Wal-Mart. The current consensus estimate for 3Q 2014 is $1.17.
  • Revenues: Revenues are seen rising 3.70% Y/Y to $118.57 bln.
  • Comparable-Store Sales: Back in May, Wal-Mart reported it expects comparable-store sales to increase in the range of 0% to 2%. According to Zack's Investment Research, analysts are expecting an increase of 0.9%, with a range of 0.5% to 1.5%.
  • Following the recent advance to all-time highs, the options market is pricing in a 2.6% move off earnings, below the historical average of about 3%.

Recent News

  • 08/06: Analysts at Detwiler Fenton, a Boston-based research firm, are indicating that the sales trends at Wal-Mart were weak during the July period, according to a post on StreetInsider.com. The weakness was especially evident in women's apparel and consumer electronics. Detwiler Fenton notes that Q2 sales could be near the lower end of guidance.
  • 07/24: According to a post on Benzinga.com, Citi reaffirmed its Buy rating on Wal-Mart. The firm points to Wal-Mart's strong positioning in the upcoming back-to-school season. Due to a consumer intention survey by the National Retail Federation, Citi believes that consumer will flock to the inferior goods space, with [overall] back-to-school sales expected to decrease 11.9% Y/Y.
  • 06/07: During its Annual Meeting of Shareholders, the Board of Directors approved a new share repurchase program, with authorization to buy back up to $15 bln of its shares. The new program became effective as of June 6. Also noted in the press release was the increase in the company's dividend, which is now $1.88, bringing the yield to 2.45%.

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Technical Review

Wal-Mart shares have lagged the broader market, rising just under 15% YTD, based on the August 13 closing price. The stock has been consolidating just under all-time highs of $79.96, with the 50-day SMA acting as support. If earnings results surprise positively, look for resistance at the aforementioned all-time highs. If results disappoint, support can be found at the 50-day SMA near $76, followed by $74. (Chart courtesy of StockCharts.com)

Summary

Wal-Mart shares are near an all-time high headed into the 2Q earnings release, amid evidence of weak sales in July. Much of the focus will center on comparable-store sales and guidance for the upcoming 3Q period. Wal-Mart already telegraphed a "flat" to 2% increase in comp-store sales. To make new all-time highs, comp-store sales and guidance should come in well above consensus estimates, anything less could be considered a disappointment and send shares back below the 50-day SMA.

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Source: Wal-Mart Earnings Preview: 2Q2014