MKM Partners is not impressed by Wal-Mart in spite many macro tailwinds this quarter and does not expect improved earnings for the first quarter.
On Thursday, MKM Partners antedates mostly in-line but not impressive earnings reports for Wal-Mart Inc. during the quarter covering from January'15 to March'15, in spite of decreasing gas price. The sell side firm reaffirmed its Neutral rating to the stock along with stock price target of $80.
Wal-Mart is all set to announce its first quarter earnings for fiscal year 2015 on Tuesday May 19, Patrick McKeever, an analyst at MKM Partner said, "We continue to expect 1QFY15 earnings per share (NYSEARCA:EPS) of $1.05 versus $1.10 last year (LY), (consensus of $1.05), and guidance of $0.95-$1.10. We expect a $0.02 impact from (minimum) wage increase (to $9 per hour), and expect investments in wages, training, and department manager add-backs (OTCQB:ALSO) to have a (negative) impact. Other earnings pressure points include incremental e-commerce investments and adverse foreign exchange (NYSE:FX)."
For the first quarter, the research firm expects 0.3% drop in operating margin to 5.1%, similar to the Street expectations. The research firm also expects revenue of $116.6 billion for the quarter, which shows 1.4% year over year increase, slightly more than the Street's estimate of 4116.2 billion.
MKM also believes that foot traffic in the store will continue to be a big challenge for the company. It estimates 1.5% growth in Wal-Mart stores at United States, which remains constant with previous year quarter and the average of 1-2% guided by the management.
However, the sell side company said this projected growth was because of easy comparisons in quarter, and doesn't think there is any progressive enhancement, in spite of several major tailwinds such as low unemployment, falling gas prices, high customer confidence throughout the first quarter.
Furthermore, the company believes that alteration in spending is also a headwind for the company. As mentioned in 2015 MKM's industry outlook for January, the consumers are dedicating their much of disposable income to homes, technology, cars etc.
Mr. McKeever further said, "When they do shop bricks-and-mortar, they are leaning more toward small, convenient formats. This is likely to continue to be a headwind for Wal-Mart's core supercenter business, although it should help the company's Neighborhood Markets continue to outperform."
The street is neutral on Wal-Mart Stores Inc. 10 out of 35 analysts assigned a buy rating while 21 gave Hold rating to the stock of the company. The twelve month mid-point target price is $84.78.