Wal-Mart Stores Inc. (NYSE: WMT) Earnings: Why We're Not on Board with This "Big Ship" Stock

This morning (Thursday), the world's largest retailer Wal-Mart Stores Inc. (NYSE: WMT) reported disappointing fourth-quarter earnings before opening bell. A challenging retail environment, foul weather, and recent restructuring kept Wal-Mart from meeting Wall Street expectations.

This is the fourth time in the last nine quarters the retail superstore notched an earnings miss. WMT stock dropped $0.48 per share (0.64%) in pre-market trading on the news, and it's down to 2.91% per share as of 9:45 a.m. EST. Historically, its stock averages a 1% loss in the week following earnings.

Wal-Mart earnings per share (EPS) were $1.34, down from $1.67 the same quarter a year ago; it had been projected to report EPS of $1.37.

For the full fiscal year 2014, Wal-Mart delivered EPS of $4.85 - a 2% increase over fiscal 2013's EPS of $5.01, but missing Wall Street expectations of an EPS between $5.11 and $5.21 per share.

The brightest news for Wal-Mart this morning was the company's global online sales and acquisitions, which topped $10 billion (a 30% increase compared to last year).

"We will continue to grow our global business by focusing on customers and serving them how they want to be served," Walmart Chief Executive Officer Doug McMillion said with earnings release this morning. "Improving store sales figures will be a priority, and we'll focus on being even stronger item and category merchants, delivering value and improving our service levels. We'll remain focused on our expense structure, and innovate to improve productivity and aid our ability to deliver everyday low prices."

Despite McMillion's optimism, recent signals from Wal-Mart management itself signaled today's miss.

On Jan. 31, Wal-Mart slashed its guidance for fiscal 2014.

"We now anticipate that our underlying EPS for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70," Wal-Mart chief financial officer Charles Holley said. "For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to $5.21."

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The dropped guidance has to do with weak U.S. retail sales, at least in part - Wal-Mart's top line has suffered due to cautious consumer spending, both in the United States and abroad.

U.S. retail sales account for 70% of economic activity, and it unexpectedly fell 0.4% for the month of January.

Last week, the U.S. Commerce Department reported that Americans are spending less on clothing, restaurants, and motor vehicles. Retailers experienced soft holiday sales at the end of 2013, and the report even retroactively downgraded November and December retail sales numbers.

On top of the struggling retail environment, Wal-Mart is experiencing some upheaval.

At the end of January, it announced it is laying off about 2,300 employees at its Sam's Club warehouse division. Sam's Club is a deep-discount membership warehouse that represented 12% of Wal-Mart sales in 2012, and the January layoff marked the Club's biggest round of job cuts in four years.

"Over the years, we've migrated to a top-heavy structure in our management," said Sam's Club Chief Executive Rosalind Brewer, in an interview with The Wall Street Journal. "What this does is align the number of assistant managers to the sales of the club and to where our growth areas are."

The move is intended to streamline business structure and allow Sam's Club to gain market share against competitors Costco Wholesale Corp. (Nasdaq: COST) and online retailer Amazon.com (Nasdaq: AMZN). Brewer "seeks to double revenue and turn it into a $100 billion business, roughly the size of Costco."

But that's not a buy sign for WMT...

Investor Takeaway - Steer Clear of This "Big Ship"

It appears little can shake Wal-Mart stock of late. After it enjoyed an over 40% rise between September 2011 and July 2012, it's consistently flat-lined.

Today it's sitting around $73.40 per share - the same place it was in July 2012.

"I'm not a Wal-Mart buyer or seller," Money Morning Capital Wave Strategist Shah Gilani said. "I don't 'trade' it because it's a big ship that moves slowly and doesn't give me the juice I look for."

Gilani also pointed out that Wal-Mart's 2.5% yield isn't worth the slow earnings growth for many investors.

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