Will Wal-Mart Earnings Move the Dow?

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to go, and Wal-Mart (WMT -0.32%) is up on Thursday. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

Wal-Mart did quite well in 2012, its 17% return far outpacing the performance of the Dow Jones Industrial Average (^DJI -0.12%). But recent concerns have weighed on the stock so far this year. 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 quarterly report on Thursday.

Stats on Wal-Mart

Source: Yahoo Finance.

Will Wal-Mart's low prices lead to high earnings?
Analysts have felt reasonably confident about their estimates for Wal-Mart, taking just a penny per share off their earnings consensus for both the just-ended holiday quarter and the company's 2014 fiscal year. But investors have been on edge, with the stock having missed out on much of the recent rally and gaining just 1% since mid-November.

Wal-Mart has done an excellent job over the decades of building up its retail empire with efficient distribution networks and solid pricing power with suppliers. Yet in order to combat Amazon.com (AMZN -1.11%) and its online assault on the retail industry, Wal-Mart has had to keep up with technological trends. When Amazon offered same-day delivery in a number of test locations last year, Wal-Mart answered the call by coming out with its own same-day service, and without Wal-Mart's extensive network of local stores, it'll be hard for Amazon to match Wal-Mart in any sort of cost-effective manner.

Moreover, although online and mobile sales make up a small part of Wal-Mart's total revenue, those numbers are climbing, and the retailer is doing what it can to make its stores act as showrooms to support its own Web-based sales whenever possible. Yet so far, the company hasn't answered Target's (TGT 0.70%) challenge of introducing online-only product lines exclusive to the rival retail giant.

The good news for Wal-Mart, though, is that it appears to have held off attacks from deep-discount retailers. Family Dollar (FDO.DL) has lost a quarter of its value as margins have shrunk and sales growth has slowed. With the payroll-tax holiday having ended on Jan. 1, deep-discounter customers have taken a big hit to their disposable income, and that may be hurting Family Dollar and its peers even more than they're hurting Wal-Mart.

Still, scandals hang over Wal-Mart. Combined with the Mexican bribery issue, in which investigations have spread to other countries as well, the European horsemeat scandal has hit Wal-Mart's Asda unit with allegations of tainted pasta sauce. More controversy is the last thing Wal-Mart needs right now, yet it looks like the company will have to keep addressing these issues for the foreseeable future.

In Wal-Mart's earnings report, investors will need to look closely for clues about what motivated its executives to send some worrying emails to each other, with one executive bemoaning the "worst start to a month I have seen in my seven years with the company." If sales weakness is real, then it could be the start of a new trend of challenging conditions for Wal-Mart.

Click here to add Wal-Mart to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.