Why Wal-Mart Will Move the Dow Tomorrow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (DJINDICES: ^DJI  ) fell Wednesday, giving up early gains of almost 100 points to close the day down almost 90 points, near its lowest levels of the day. Many investors blamed the decline on discussions from Federal Reserve officials, who noted that the weather-related impacts we've seen in economic data during the past couple of months are worth considering, but appear unlikely to deter the Fed from its path of tapering bond-purchase activity. Yet, those following the economy will look closely at earnings results from Wal-Mart (NYSE: WMT  ) tomorrow morning, especially given the sluggish performance the retail giant has had during the past year as it fights both online competition, traditional retail stores, warehouse rival Costco Wholesale (NASDAQ: COST  ) , and Dollar General (NYSE: DG  ) and its dollar-store deep-discount peers.

Wal-Mart plans to issue its press release with earnings figures, along with a pre-recorded explanatory phone call, at around 7 a.m. EST Thursday morning. The company will make a full transcript of the call available at the same time the pre-recorded call begins.

Source: Wikimedia Commons.

Expectations for Wal-Mart's fiscal fourth-quarter results are relatively low, especially given the fact that the retailer already gave a downbeat preliminary update from the holiday quarter. Wal-Mart said that it expects results to come in at or below the low end of the ranges it gave, and same-store sales could be worse than the roughly break-even original guidance for the quarter. With many other retailers having reported troubling results for their holiday quarters based on high levels of promotional discounting, Wal-Mart faces an uphill battle to break the downward spiral of its three-straight quarters of declining comps.

Yet, Wal-Mart can't blame all of its troubles on a poor economic environment. Costco has done a better job in producing growth from its warehouse model than Wal-Mart's Sam's Club. Costco's bigger emphasis on membership for profits has proven popular among customers, and even Wal-Mart's arguable pricing-power advantages haven't panned out in higher sales for Sam's Club. Indeed, Sam's Club recently laid off 2,300 of its workers, raising concerns about the unit's growth prospects going forward.

Meanwhile, Dollar General's aggressive expansion efforts have given its smaller stores an increasingly ubiquitous presence across the nation, choking off some of Wal-Mart's revenue. Although dollar stores can't match the selection of Wal-Mart supercenters, they do tend to focus more on the higher-margin goods that help drive profits. Losing out on those sales could make Wal-Mart less attractive on its bottom line.

For Wal-Mart shareholders, Thursday's release should give investors more hints on how bad the consumer side of the economy could get. If Wal-Mart can show signs of recovery, then it could help propel the Dow to reverse today's losses, and keep bouncing back from its January declines.

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