Color on Wal-Mart's Recent Earnings

By Brian Sozzi

As to be expected, the Wal-Mart (WMT) operating machine was in full swing in the October quarter (full conference call transcript here). A continued focus on driving productivity throughout the organization, such as reducing the height of inventory in the stores to more efficiently operating the Wal-Mart private truck fleet helped to expand gross margin nicely year over year despite the impact of consumables deflation, resumption of higher energy prices, and aggressive pricing maneuvers.

However, there were a few areas of concern throughout the report, which explains why the stock was getting hit pre-market yesterday. In many respects, these sources of worry should have been clearly understood as executives have been on the road throughout the quarter tempering expectations for the holiday season as a result of a "difficult" consumer spending backdrop. Nonetheless, here is what we are seeing in the numbers:

Why we think WMT's stock initially got hit on news:

• Guidance for 4Q in line, with aggressive pricing this year, more so than last our my opinion (see recent Blackberry promotion), there is concern as to whether they could meet this in line forecast
• Comps in 3Q at WMT U.S. division were below plan
  
• 4Q WMT U.S. comp guidance assumes a 240 bps y/y decline
  
• Operating margins at WMT U.S. down 31 bps q/q
  

Positives (must point these out as well for those optimists)

• Gross margin up nicely y/y, beat consensus forecast
• Sam's Club showing real progress in gross margin and expense reduction
  

Disclosure: None

Comments

[tdwhitney:]

I think he split the shares because it was a share swap deal


On Nov 13 01:36 PM PARTICULARMEN wrote:

Nov 13 04:06 PM