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Walmart Earnings Could Trigger a WMT Selloff

Walmart (WMT) is the world’s biggest retail stock, but that doesn’t guarantee stability.

Walmart earnings could be rough yet again this week, and WMT could take a tumble as a result.

Walmart earnings in May were disappointing, featuring a same-store sales slip for the first time in almost two years. Those who owned Walmart stock at any time from 2009 to 2011 should remember the unfortunate drag on shares caused by nine consecutive quarters of same-store sales declines during that stretch.

Consider that from April 2009 to September 2011, Walmart stock literally went nowhere while the S&P 500 added more than 50%.

Granted, it hasn’t been an easy road for any retailer. Old-guard department stores JCPenney (JCP) and Sears (SHLD) have struggled mightily to adapt to the new economic environment and to fend off e-commerce from Amazon (AMZN). At the same time, weak consumer spending has been an issue for all kinds of retailers over the last several years, from teen clothing giant Abercrombie (ANF) to electronics retailer Best Buy (BBY) to upscale big-box store Target (TGT) to every store in between.

Now, WMT was full of excuses on why earnings disappointed a few months ago. Walmart blamed cold, wet weather holding back sales of seasonal items and blamed a delay on income tax returns that normally boosts spring revenue. But Walmart earnings this week won’t have the luxury of similar excuses to defuse investors’ fears, and there’s a lot riding on these numbers.

Walmart earnings have been characterized by poor top-line growth amid weak consumer spending at home; the unfortunate reality of having a low-price appeal means that your customer base is made up of the poorest consumers who are most susceptible to pullbacks in discretionary spending.

Coupled with heavy spending to enter overseas markets that haven’t must begin paying off, Walmart earnings haven’t had much upside. WMT stock has only slightly underperformed in 2013 with 14% returns year-to-date, but the stock’s roughly 57% returns from the March 2009 lows are less than half the gains of the broader stock market in the same period.

After setting a high near $80 in right before Walmart’s first-quarter earnings showed a miss on sales, the stock hasn’t made much of a move. That’s telling, and proof that Walmart stock investors are in wait-and-see mode.

With just a 2.4% dividend yield, folks are waiting for this next round of Walmart earnings to prove either that the stock has stabilized or to confirm that the troubles of last quarter are persistent.

If we see another Walmart earnings miss this week, expect another long stretch of underperformance for WMT.

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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • the count

    Jeff,
    You told people to buy JC Penney at 18 or 19 and now its less than 9$/share. You are telling people to sell one of the strongest and most stable companies in the world that has proven to be an excellent investment over time? Why would anyone every listen to anything you say?

  • Tom Strohecker

    I had 75 shares of Walmart, I dumped that stock 2 months ago, due to it’s overall lackluster performance over time.
    The current protests, and boycotts show to me that this is NOT going to be a good year for Walmart. The bad press with Walmart hushing up it’s employees speaking out about working conditions and low wages won’t play well over time.
    Save yourself and dump this stock.