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Wal-Mart Earnings Inline, Tax Refund Delay Shifts Sales: BAML

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Wal-Mart Earnings Inline, Tax Refund Delay Shifts Sales: BAML

Wal-Mart Stores, Inc. (NYSE:WMT) reported F4Q12 EPS of $1.67 versus consensus of $1.57 with a favorable tax rate driving the 13 cents of EPS upside. Wal-Mart U.S. same-store sales of 1% were in-line with most forecasts (driven by a 1.1% increase in average ticket and slightly negative traffic). Gross margin was ahead of forecasts +8bps y/y, while SG&A deleveraged by 11bps , bringing operating margins slightly at 6.7%.

F14 EPS guidance of $5.20-$5.40 in-line with analysts’ $5.35 Full year F2014 guidance of $5.20-5.40 includes 9 cents of costs related to ecommerce investments and 1c (or $40-45MM in expected costs associated with FCPA compliance matters) and compares to forecasts of $5.35 forecast.

Tax refund shift pressures Wal-Mart Stores, Inc. (NYSE:WMT) sales in early February.

Analysts at BAML believe that later tax refunds in 2013 is likely shifting sales out of the first two weeks of Feb. to later in the month for Wal-Mart (& other retailers). Importantly, Wal-Mart indicated that “February sales started slower than planned, due in large part to the delay in income tax refunds” and that the company had begun “seeing increased tax refund check activity late last week in their stores, resulting in a more normalized weekly sales pattern for this time of year.

BAML states:

“We believe delayed tax refund activity this year and a conservative outlook for the U.S. consumer has led to Wal-Mart’s F1Q13 guidance below our forecast, with EPS guidance in the range of $1.11-1.16 (vs our current $1.19 forecast) and conservative Wal-Mart U.S. same-store sales guidance of “around flat” and Sam’s Club of +0-2% (which compares to our current model F1Q14 forecasts of +1% and +2% respectively).”

Market share gains continue; Wal-Mart indicated that in their press release that market share gains were achieved in food, consumables, health and wellness, toys and entertainment in 4Q12. Investors who are bullish on Wal-Mart cite 1) WMT’s US growth outlook remains supported by a combination of sq ft growth (+2-3% in F13 & F14E), EDLP focus and commitment to a broadened & more locally relevant merchandise assortment; 2) improving profit outlook supported by goals to continue generating SG&A leverage globally; 3) WMT’s continued progress in global eCommerce; & 4) Sam’s Club’s improving outlook given an expected national membership fee increase supported by new marketing tactics and an electronic membership card w/ automatically loaded targeted offers & cash rewards program.

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