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Could Walmart Be Sitting On Another Disappointing Quarter?

Stocks in this article: WMT

NEW YORK (TheStreet) -- Could Walmart (WMT) disappoint when it reports second-quarter earnings on Aug. 14? U.S. division president and CEO, Bill Simon, told Reuters in a recent interview that the giant retailer hasn't been a beneficiary of the upturn in the U.S. labor market.

"It's really hard to see in our business today .. that it's gotten any better," Simon said, when asked about the improving labor market. "We've reached a point where it's not getting any better, but it's not getting any worse, at least for the middle class and down."

The company said in May that it expects U.S. second-quarter same-store sales to be "relatively flat" with a year earlier, when it reported a 0.3% decline. Walmart said in May that earnings would come in at between $1.15 to $1.25 a share vs. $1.24 a year earlier.

Walmart's vice president of investor relations, Carol Schumacher, said: "You can take the comments at face value, as Bill was talking about the employment picture for our customer, not specifically about second-quarter sales for Walmart U.S. The guidance that we provided on Thursday, May 15, for Walmart U.S. comps for the second quarter was 'relatively flat.' We have not updated that guidance."

My firm, Belus Capital Advisors, which rates Walmart shares a sell with a $71 price target, views Walmart's forward earnings outlook as weak because of the company's ongoing investments in lower merchandise pricing and competitive pressures from online channels, notably Amazon (AMZN) and Best Buy (BBY).

U.S. employers added 288,000 jobs in June and the unemployment rate fell to 6.1% from 6.3% in May, the lowest since 2008. The strong increase in jobs last month echoed improvement elsewhere in the economy. 

Consumer sentiment, as measured by Thomson Reuters/University of Michigan, rose to 82.5 in June from 81.9 in May. The report had its highest share of households in seven years reporting they made financial gains. Those numbers followed the most recent from the Conference Board, where in its consumer confidence survey for June the reading hit its highest level in five years. In addition, the Commerce Department's report on personal income for May rose 0.4%, up from a 0.3% gain in April.   

Yet, shares of Walmart have declined 2.7% over the past three months while the Dow Jones Industrial Average has risen 4.7% and the S&P 500 has gained 6.8%. Walmart shares closed Tuesday at $76.65. 

Wall Street is looking for second-quarter earnings of $1.21 a share, down from a $1.28 estimate 60 days earlier, as compiled by Yahoo Finance, and at the mid-range of management's guidance of $1.15 to $1.25 a share.

In May, following the release of first-quarter results, Simon said the retailer had "solid fundamentals." CEO Doug McMillon said then that Walmart's "underlying business is solid." Simon also said in May that Walmart's U.S. same-store sales turned positive "in the past month."

U.S. same-store sales at Walmart have declined for five consecutive quarters, and the company is coming off two bad earnings misses that led to warnings for upcoming quarters.

Considering Simon's comments, and the lagging sales and earnings performance of Walmart's operations for more than a year, the second quarter may not have been kind to the giant retailer.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. At the time of this publication, Belus Capital Advisors rated Walmart a sell. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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