Dow Gains, but Wal-Mart and Groupon Both Slide on Poor Guidance

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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.

Stocks overcame a weak manufacturing report, poor earnings from Wal-Mart  (NYSE: WMT  ) , and yesterday's concerns about the stimulus taper to finish in positive territory as the Dow Jones Industrial Average  (DJINDICES: ^DJI  ) finished up 93 points, or 0.6%, while the S&P 500 closed up by the same amount. A report from the Philadelphia Fed showed manufacturing activity in the mid-Atlantic has actually contracted this month as the index fell to -6.3 points, down from 9.4, and below estimates at 7.4. Analysts seemed to attribute the slowdown to poor weather, though a report from Markit showed manufacturing nationwide expanding at its fastest pace in four years, rising from 53.7 to 56.7. Elsewhere, a report in China showed manufacturing contracted again, hitting a seven-month low. Finally, initial unemployment claims held steady last week at 336,000, even with expectations.

The world's biggest retailer finished the day down 1.8% after its outlook for the year disappointed the market. Like many other retailers, Wal-Mart cited poor holiday sales and bad weather for the underwhelming earnings report. as it posted a per-share profit of $1.60, down from $1.67 a year ago, but $0.01 ahead of estimates. Sales inched up 1.4%, to $128.8 billion, but that missed estimates at $130.2 billion. Meanwhile, same-store sales dropped 0.4%, though comps at its smaller-format Neighborhood Market stores increased 5%. For the current quarter, Wal-Mart expects a per-share profit of $1.10-$1.20, worse than estimates of $1.23. For the year, the retail giant sees EPS of $5.10-$5.45 against expectations of $5.54. CFO Charles Holley said economic factors would "continue to weigh on our outlook," and cited issues like food-stamp cuts, higher taxes, and health-care spending for the slow profit growth. Separately, the company said it would accelerate openings of its Neighborhood Market stores, and raised its quarterly dividend 2%, to $0.48, its 41st consecutive yearly increase.

After hours, Groupon  (NASDAQ: GRPN  ) shares were tumbling, down 11% after the daily deals merchant provided its own weak outlook. The online clearinghouse posted EPS of $0.04 in the past quarter, better than expectations of $0.02, while revenue jumped 20.4%, to $768.4 million, much better than the consensus at $718.7 million. For the current quarter, Groupon expects sales of $710-$760 million, ahead of estimates, but the bottom line sent investors fleeing as it projected results of -$0.04-$0.02, while analysts had expected a per-share profit of $0.06. During its brief history as a publicly traded company, Groupon has proven to be skilled at growing its top line, but profits have consistently been elusive. Its Goods department drove the surprising increase in sales, proof of its changing business model, and the company seems to be making the right steps for long-term stability with acquisitions of companies like Ticket Monster. Still, this will remain a risky investment until the deal merchant sees consistent profit growth. 

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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Related Tickers

8/28/2015 4:55 PM
^DJI $16643.01 Down -11.76 -0.07%
GRPN $4.60 Up +0.32 +7.48%
Groupon, Inc. CAPS Rating: *
WMT $64.94 Down -1.14 -1.73%
Wal-Mart Stores CAPS Rating: ***