Wal-Mart Stores, Inc. Earnings: Can the Retail Giant Keep Growing?

On Thursday, Wal-Mart (NYSE: WMT  ) will release its quarterly report, and investors have been worried about how well the retail giant can compete against competition on multiple fronts. At the same time that Target (NYSE: TGT  ) and other big-box retailers are honing their focus in order to draw business away from Wal-Mart, Amazon.com (NASDAQ: AMZN  ) and other online-centered retail operations are taking advantage of the convenience of Internet shopping, forcing Wal-Mart to beef up its own e-commerce presence in order to sustain its growth.

Wal-Mart has come from nowhere a half-century ago to become the biggest retail operation in the nation, with millions of employees relying on Wal-Mart for their livelihood and a huge group of suppliers who count on its business as a major part of their overall revenue. But lately, Wal-Mart has had difficulty growing, as competition gets smarter about marketing to the middle-class demographic that Wal-Mart has always done a good job targeting. Let's take an early look at what's been happening with Wal-Mart over the past quarter and what we're likely to see in its report.

Stats on Wal-Mart

Analyst EPS Estimate

$1.15

Change From Year-Ago EPS

0.9%

Revenue Estimate

$116.28 billion

Change From Year-Ago Revenue

1.8%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Wal-Mart earnings ever accelerate their growth?
Investors have gotten much more nervous about Wal-Mart earnings in recent months, cutting their April-quarter estimates by almost a dime per share and cutting full-year projections for both this fiscal year and next by about 5%. The stock has done reasonably well, though, rising almost 9% since early February.

Wal-Mart's fiscal fourth-quarter results show the difficulty that the company has had in producing growth. The retailer said that quarter earnings fell by 21%, with same-store sales falling 0.4% in the U.S. market. Even worse, Wal-Mart said that it expects revenue growth to be closer to 3%-4% for the full 2014 year. Smaller stores have performed well, as Wal-Mart seeks to compete against Target and Amazon.com by opening more of its neighborhood locations to capture more business.

Source: Wal-Mart.

But another key reason that Wal-Mart isn't getting the growth it needs is that it isn't taking full advantage of emerging markets. Shoppers' attitudes in places like Brazil and China are much different than they are in the U.S., and in particular, consumers aren't used to the concept of doing all their shopping in one location rather than going to multiple stores in order to get the best prices. That has forced Wal-Mart to reconsider its growth trajectory in those countries, and given their superior growth compared to the well-saturated U.S. market, missing out on the full emerging-market opportunity has been costly for Wal-Mart.

Still, Wal-Mart has been working hard to find new areas to raise revenue and profits. With its recent plans to carry Wild Oats organic products, Wal-Mart is tapping into a lucrative niche that has helped give specialty grocers huge margin advantages over traditional food sellers and could give customers a reason to shop there versus Target or Amazon. Wal-Mart's typical discounting practices won't give it the full benefit of those higher margins, but by staying true to its lower-price philosophy, it could encourage some of its shoppers to move up to higher-priced organic and natural foods as well as bring new customers in the door.

In addition, Wal-Mart wants to boost its presence in financial services, and it recently ramped up its offerings of money-transfer services in order to do that. By charging less than its current money-transfer partner, Wal-Mart adds to its existing lineup that already includes the BlueBird prepaid card and other useful financial products for those without traditional banking relationships. Wal-Mart hopes that by giving people more excuses to come into stores, it will sell more goods as well.

In the Wal-Mart earnings report, watch to see whether the company is able to make positive progress on the international front. Domestically, competitive pressures will continue to exist, but Wal-Mart's true potential lies in making itself a world power in retail.

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