Analysts expect

Wal-Mart

(WMT) - Get Report

to report a 17% jump in third-quarter earnings when it releases its results Tuesday morning, but traders will be more focused on its guidance for the future and its assessment of strength in consumer spending.

The world's largest retailer will likely say it earned $2.257 billion, or 54 cents a share, for the quarter, up from $2.028 billion, or 46 cents a share, reported for the same quarter last year. The results were essentially preannounced when the company guided to the high end of its original plan for earnings of 52 cents to 54 cents a share on its October sales call.

Any significant move in Wal-Mart's stock price, which closed up 85 cents, or 1.5%, to $57.70 Monday, probably would arise from a shift in its fourth-quarter estimates. Wall Street's consensus estimate calls for earnings of 74 cents a share, up from last year's 63 cents a share.

For the full year, the retailer is expected to earn $2.40 a share.

Also, investors will be attentive to any assessments of macroeconomic conditions given by management, particularly those pertaining to the spending power of lower-income individuals who make up Wal-Mart's core customer base. Throughout 2004, record-high oil prices that translated into higher gas prices were viewed as a major burden on spending, particularly to the less affluent.

"Management's tone will be very important tomorrow," said Mark Miller, an analyst with William Blair & Co. (he does not own shares of Wal-Mart, and his firm does not have a banking relationship with the company). "I think they've got a great perspective on how fortunes for that low-income consumer are progressing. With the ease in oil prices, the strong job report and the postelection bounce, there's a number of things lining up to be quite favorable for the low-income consumer."

On a top-line basis, Wal-Mart got off to a slow start in the third quarter, posting a same-store sales gain in August of just 0.5% and guiding to the low end of its earnings range. Things improved in September, with a 2.4% gain in comps, but that figure was still well below the company's historical norm. In October, the discount giant said comps hit 2.8%, and it reversed its guidance to the high end of its range.

Analysts have cited difficult comparisons to 2003, when customers were spurred on by federal tax relief, as a reason for the slowdown in same-store sales. These difficult comparisons peaked in the third quarter and will ease in the fourth, because Wal-Mart suffered its second-worst holiday season in 10 years in the fourth quarter of 2003.

Emme Kozloff, an analyst with Bernstein and Co., expects the company to show an 8.8% increase in overall sales and a 2% jump in comps for the quarter (she does not own shares, and her firm does not have a banking relationship with the company).

Boosting third-quarter results, Wal-Mart is expected to show a slight increase in operating margins and a lower effective tax rate due to the retroactive reinstatement of an employment-related tax credit.

Selling costs also will be in focus, as the company is expected to see added pressure in labor, health care and utilities costs, as well as litigation expenses.

"Wal-Mart's business model remains solid, but profitability is being constrained by SG&A pressures," Kozloff wrote in a research note Monday. "We also believe the headline risk related to legal issues and expansion resistance has also been, and will continue to weigh on the stock."

Shares of Wal-Mart have gained more than 10% since oil prices began dropping in late October, just before the reelection of President Bush. They're up more than 8% in 2004.

"I think it's reasonable to expect Wal-Mart's costs to increase as the company continues to grow, but I also think they have ways to achieve stronger gross margins at the same time," Miller said. "I think we'll see gross margins continue to go up tomorrow, through better mark-down management, more direct imports and deflation on the apparel side of the business."