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I conducted an analysis on Walmart (NYSE:WMT):

* Recently Wall Street has lowered 4th Q EPS estimates to $0.89 from $0.90 due to lower top line assumptions following management's soft December sales outlook. WMT posted a likely lackluster holiday season and store remodels to once again negatively impact sales.

* Wall Street has recently raised the SG&A rate change estimate to +31bp from +13bp to reflect reduced leverage on a lower sales base.

* WMT hopes to drive comparable store sales through continued expansion of its Super Center format and by focusing on local market share positions. Operating over 684 million square feet globally, WMT aims to grow square footage at least 8% per year through the addition of over 60 million square feet in 07.

* The SSS estimate fell to 1.1% from prior 1.7% and November SSS fell as expected. Walmart Division declined 0.5% and Sam’s increased 2.0%, while total SSS were negatively affected by 80bps from strong hurricane related sales a year ago. By category, home and apparel were weak while food, electronics, and pharmacy were stronger.

* December SSS guidance of 0-1% was below expectations given easing comparisons and management’s 4th Q SSS guidance of 1-2%. Assuming WMT hits the upper end of its December guidance, January would have to increase about 2.5% to get 4th Q to the low-end of the quarterly guidance range.

* WMT continues to struggle on the top line as weakness in fashion apparel and home offset better performance in food, electronics, and pharmacy. 3rd Q results demonstrated WMT's ability to deliver margin, but nevertheless have led to trimming of 4th Q EPS estimate to reflect the weaker-than-expected December top-line outlook.

* Investors should expect near term sales to be pressured by weaker apparel sales and difficult comps related to last year's hurricanes. Look for sales trends to improve in the spring when new merchandise is offered and hurricane comparisons ease.


WMT 1-yr chart

WMT
Source: Walmart: Looking Forward to Better Times