Wal-Mart (WMT), the nation's biggest discount retailer announced 3rd quarter 2013 earnings this week. Although they were able to top estimates by a penny, the company warned about the competitive environment, sluggish consumer confidence and a global outlook that has many fearing a slowdown in earnings over the next year.
Modest Increase In Revenues
Income was up 2.8 percent over the same period last year to $3.7 billion, with per share earnings up 6.5 percent to $1.14 per share. Initially, Wal-Mart stock fell on the news, but later rallied 0.2 percent to $79.08 per share. On the surface, this looks like a respectable number considering the flagging economy, but the real concerns begin as you look deeper into the figures. Mike Duke, Wal-Mart's CEO, warned that the slow-recovery will continue to be a drag on revenues. Also, increased payroll taxes have reached into the pockets of Wal-Mart's consumer base, making it hard for the company to gain traction during the slow recovery. Gas prices have also eaten into discretionary purchasing.
Inside the Numbers
Wal-Mart's president and CEO of the international division expressed similar cautions, noting that the global economy posed significant challenges for the company's earnings. Currency concerns that cause Wal-Mart goods to be more expensive in other countries will cause a drag on growth. Overall, consolidated net sales rose 1.6 percent to $114.9 billion. Wal-Mart U.S. contributed $67 billion to that figure. However, on a constant currency basis the number would have been $116.2 billion, and that figure would have been below Wall Street estimate of $116.8 billion.
Wal-Mart has been struggling throughout the year, with sales in stores open less than a year down and a sluggish economy that is hurting their most reliable customers, low-income workers. Wal-Mart expects sales growth for the 4th quarter to come in relatively flat. Deep discounting for Christmas season by other retailers could put a deep dent in the company's competitive edge. In addition, the sluggish job growth and fears over healthcare costs may put people in a stingy state of mind for the holidays. These factors will put pressure on Wal-Mart's earnings at end of year.
Going into 2014, higher taxes, sluggish job growth and decreasing global sales may place a drag on Wal-Mart stock for some time. With the stock up 18% Y/T/D it may be prudent to take some profits in this retailer.