Why the Dow Could Feel Wal-Mart's Wrath Tomorrow

One of the final reports of the first quarter still tells a lot about the state of the retail economy.

May 14, 2014 at 4:30PM
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The Dow Jones Industrials (DJINDICES:^DJI) weren't able to set their third record close of the week Wednesday, falling 101 points after a sharp upward run that carried the index to new heights. Meanwhile, even though all but a few Dow stocks have already reported earnings, Thursday morning's report from Wal-Mart (NYSE:WMT) could say a lot about how it and other top retailers in the nation have fared in a brutal winter and its subsequent aftermath. Given the impact that consumers have on the overall economy, Wal-Mart's read could easily have a major influence on the entire Dow Jones Industrial Average.

Wal-Mart will issue its press release tomorrow morning at about 7 a.m. EDT. The retailer doesn't offer a live conference call, but Wal-Mart prerecords a management review of its results and releases the phone call and transcript at the same time as its regular earnings report.

Wmt
Source: Wal-Mart.

Wal-Mart has been in a difficult position from a fundamental standpoint for a long time, as the giant big-box retailer faces competition on multiple fronts. Investors expect only tepid growth rates from Wal-Mart on earnings and sales and can only hope that same-store sales figures domestically will finally start to improve after a slight drop during the holiday quarter. However, the company has previously said that it expects relatively flat performance in the fiscal first quarter as well.

Wmt

Source: Wal-Mart.

One interesting thing about Wal-Mart is that the company's attempts to bolster its e-commerce division in order to respond to pressure from Amazon.com (NASDAQ:AMZN) have actually produced some increased growth. Wal-Mart's overall Internet-based sales rose 30% in its just-ended fiscal year, and although that growth comes from a far smaller base, it still outpaces that of Amazon's online business. Still, ramping up its e-commerce presence to face off against Amazon could be expensive, with the need for capital spending to make its online site more attractive and user-friendly for shoppers.

More broadly, one thing that Wal-Mart has lacked is a strong international business. Around the world, many companies are capitalizing on emerging market growth to support their own flagging growth in more developed markets. Yet Wal-Mart's shopping experience hasn't always translated well in different cultures, and it's been surprising the extent to which the Wal-Mart concept has run into roadblocks within certain countries.

With Wal-Mart's quarter including the cold winter months of February and March, it could be challenging for the retailer to post a huge rebound in revenue and net income. Yet with expectations so low, even the beginning of a turnaround could send Wal-Mart higher and take the entire Dow Jones Industrial Average with it.

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