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Wal Mart – Dissecting Earnings and Retail Sector Trend

|Includes: Wal-Mart Stores, Inc. (WMT)
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Let us first look at the retail sector before diving into WMT outlook

Retail Sector Outlook
  • Retail sales increased in the month of January 2010 – Consumers are still shopping!
     
  • Improving retail sales, amidst increasing Job loss data and not-so-encouraging credit scenario, has given the market something to cheer for. We believe it is likely bellwether for the year 2010
     
  • The top increase came from sales at non-retail stores – internet retailers and catalog companies, which grew over 20% in the last six months
     
  • General merchandise store sales  increased by 1.5%
     
  • Sales at electronics and appliance stores rose 1.2%
     
  • Sales at food and beverage store rose 0.8%
     
  • Dismal performance was recorded stores selling building materials and furniture’s
     
  • The Homebuilder survey for February posted 2pt gains in both the overall index and in the component measuring current sales. But the index is still at very low levels
     
  • Reading for Retail sales may be depressed in February due to the winter storm affect. It will rebound in March
     
  • StockJupiter's research finds retail sector to be attractive in 2010
 
Wal-Mart (NYSE:WMT) Earnings and Outlook
 
Fourth Quarter Earning Highlights:
 
Q4 retail company results are of a great interest to the markets, as it includes the all-important holiday shopping season.
 
Wal-Mart’s reported a mediocre domestic sales result, but showed conviction in the international sales. The market punished the stock by 59 cents. The retailer issued a lukewarm outlook for the current quarter, suggesting that consumers were still feeling pinched.
 
Walmart reports fourth quarter earnings per share of $1.23 and adjusted earnings per share of $1.17, five cents above the company’s latest guidance and five cents above the First Call consensus estimate.
 
For the fourth quarter, comparable store sales were below guidance, due primarily to deflation in grocery and electronics
 
Walmart U.S. expects comparable store sales without fuel during the 13-week period from Sat., Jan. 30, through Fri., April 30, 2010 to be flat, plus or minus 1.0 percent, as compared to 3.6 percent for the comparable period last year
 
Wal-Mart – Outlook by StockJupiter
  • ·         Wal-Mart to concentrate more on international business –
o    International business, especially in China and Brazil will drive revenues up
o    International net sales exceeding $100 billion for the first time this year
  • ·         Strong Free Cash flow is what makes a company stands out -
o    Walmart ended the year with strong free cash flow of $14.1 billion, an increase over last year of almost 21 percent.
  • ·         Continued focus on strategy -
o    To drive customer traffic, Wal-Mart said it was accelerating the introduction of its Project Impact stores -- big boxes reconfigured to be more intuitive and easier to shop, with fewer brands, better sight lines and clearer signs.
  • ·         Business Expansion –
o    The company added more than 34 million net square feet of selling space this year, with International contributing more than half of that growth
  • ·         Cost Control Strategy –
o    Wal-Mart plans to grow expenses slower than the rate of sales in the new fiscal year.
Technical Analysis
o    The stock has been hitting a support of $52.50, since December 2009.
o    The stock has been making lower highs during this period
o    The stock may breach the support price of $52.50 in medium term.
Do not own this stock for price performance. StockJupiter advises a wait time of 3 months and -
1.     Look for improvement in comparable store sales
2.     Look for continued improvement in International sales number
3.     Look for improvement in retail sales figures for the economy

sincerely,
StockJupiter team