Wal-Mart (WMT) Hit by Bloated Q2 Expectations

August 16, 2012 7:47 AM EDT
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Retail behemoth Wal-Mart (NYSE: WMT) reported mixed results for the second quarter of 2012. Despite beating EPS estimates by a penny, shares sold off in pre-market trading immediately following the results. The selloff was triggered as a result of high expectations and lower revenues than expected for the quarter. Analysts are calling it a "sell the news" reaction.

Wal-Mart reported 2Q revenue of $114.3 billion compared to revenue of $109 billion last year, an increase of 4.5 percent. Analysts were calling for revenue of $115.56 billion. Wal-Mart comps rose 2.2 percent through July 27th, and Sam’s Club comps increased 4.2 percent. Wal-Mart international grew 6.4 percent.

Wal-Mart stock went into earnings near 52-week highs just under $75 per share. Year-to-date shares of WMT have gained 23 percent, making it one of the best performing mega-cap stocks this year, and as a result expectations were somewhat bloated. While earnings did beat consensus, coming in at $1.18 vs. $1.17 expected and $1.09 for the prior year, it wasn’t quite enough to keep the forward momentum in the stock.

For the year, Wal-Mart expects full year earnings of between $4.83 and $4.93, up from last year's $4.54. This is solidly above prior guidance of $4.72-4.92, but the raise targeted the low end of the range and analyst were already calling for earnings of $4.93, so again, these are solid numbers, but the reaction was relatively muted.

In the current quarter (Q3), Wal-Mart sees EPS of $1.04-$1.09, versus the consensus of $1.05.

Shares of Wal-Mart are trading lower by 3.3 percent pre-market.

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