Earnings Preview: Wal-Mart Investors Wait-and-See on Sales
But the longer high unemployment drags on, along with weak consumer spending, the worse it is for Wal-Mart. Its low prices keep bringing in customers, but their average receipts aren't growing. Plus, the company is spending money to upgrade its stores and fighting a price war with discounter Target (TGT), which just announced a $1 billion plan to redesign its stores and enlarge its food sections. Necessity purchases such as food have held up better than nonessentials such as apparel and housewares throughout the recession, and Target has vowed to underprice Wal-Mart.
Wal-Mart's management has acknowledged that price deflation -- especially in big categories such as food and electronics -- has been taking a bite out of sales during the last year. Wal-Mart, which unlike other retailers doesn't report its monthly figures publicly, has experienced same-store sales declines in the second and third quarters.
Buffett Doubles Down
Investors will be looking for signs of improvement in sales, especially as gas prices have been increasing, which should help sales numbers at Sam's Club stores. Rivals Costco Wholesale (COST) and BJs Wholesale Clubs (BJ) both posted improved sales numbers as the year wound down and gas prices rose.
Nearly all retailers posted better-the-expected holiday sales by year-end, so investors will likely have some pointed questions for management if Wal-Mart's sales numbers didn't move into positive territory during the fourth quarter.
Most analysts won't bet against Wal-Mart -- the general consensus rates the stock a solid buy with price targets between $60 and $66 in most cases. Even Warren Buffett doubled down on the stock recently, betting it has room to grow in the long term. The stock closed Tuesday at $53.56, up 1.25% for the day, as investors waited for the year-end report.
Investors will want more details about Wal-Mart's recently announced new global strategy to consolidate its inventory sourcing to reduce costs. It's expected to give Wal-Mart more breathing room to increase profits while keeping prices low, but Wall Street will demand more facts and figures -- even from the 900-pound gorilla of retail.