Wal-Mart Stores Inc. (NYSE: WMT) Earnings Preview: Whether a Hit or a Miss, Don't Buy

Wal-Mart NYSE: WMT Feb 19 04:01 PM loading chart... Price: 74.81 | Ch: -0.52 (-0.7%)

Thursday, Wal-Mart Stores Inc. (NYSE: WMT) will report fourth-quarter earnings before opening bell. A challenging retail environment and recent restructuring are likely to keep Wal-Mart from beating - or even meeting - expectations.

That's just one reason investors should steer clear of Wal-Mart stock.

The retail superstore has missed Wall Street expectations in three of the last eight quarters and averages a 1% stock loss in the week following earnings.

This time around, it is expected to report fourth-quarter earnings per share (EPS) of $1.37 on revenue of $130.55 billion, compared with a profit of $1.67 per share on revenue of $127.92 billion in the same quarter a year ago.

For the full fiscal year 2014, Wal-Mart is projected to deliver EPS of between $5.11 and $5.21 per share.

But recent events warn of a potential 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, marking the biggest round of job cuts in four years for the club stores.

"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...

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 $74.90 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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Related Articles:

• The Wall Street Journal:
  Wal-Mart to Lay Off 2,300 Sam's Club Employees
• Business Insider:
  Wal-Mart Issues Earnings Warning And The Stock Is Falling