Ahead of the Tape: Check Out Wal-Mart's Shares -- WSJ

By Steven Russolillo 

In this difficult retail environment, Wal-Mart Stores Inc. might have one saving grace: its grocery business.

Retail stocks have been pummeled of late, with apparel retailers and department-store operators hit the hardest due to sluggish sales and disappointing outlooks. The gloom has spread to nearly all pockets of retail, Wal-Mart included. Its shares have fallen some 7% in sympathy over the past few weeks.

This looks overdone. Wal-Mart, the world's largest retailer by sales, differs from the likes of Macy's Inc., Kohl's Corp. and even Target Corp. due to what it actually sells. Wal-Mart gets more than half of its revenue from grocery, making it somewhat insulated from retail's broader troubles.

And as food shopping hasn't shifted online as quickly as other industries, Wal-Mart might be better-positioned to weather some of the sector's troubles in its fiscal first-quarter results, expected Thursday.

Not that Wal-Mart doesn't have problems of its own. Analysts expect earnings for the period ending in April of 88 cents a share, down 14% from a year ago. Profits have been pressured by heavy spending on store improvements, e-commerce operations and wage increases. Revenue is estimated to have dropped 1% to $113 billion. That comes after Wal-Mart's revenue fell last year for the first time as a public company.

But there are bright spots. Analysts expect Wal-Mart to report a seventh consecutive quarter of positive same-store sales. Much of that is attributed to grocery, which has held steady at 56% of Wal-Mart's annual revenue over the past three years.

Broader trends in retail sales might benefit Wal-Mart, too. In the past three months ending in April, spending at grocery stores has risen 3%, according to the Commerce Department. By comparison, department-store spending has fallen by 2.4%.

And Wal-Mart's battered stock might have fallen too far given the current environment. Shares are down more than 20% over the past 12 months and off some 30% from last year's record high. Trading at 15 times projected earnings over the next 12 months, Wal-Mart's multiple is roughly in-line with its three-year average.

Consumers are willing to spend. They are just being selective. As retailers struggle, Wal-Mart might not look so bad.

Write to Steven Russolillo at [e-mail]

(END) Dow Jones Newswires

May 19, 2016 02:47 ET (06:47 GMT)

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