Wal-Mart signals a tough year

Wal-Mart (NYSE: WMT) reported its quarter this morning achieving earnings estimates of $.68 per share versus $.64 for the same quarter last year. Total revenues came in at $86 billion versus $79.6 billion last year. All in all not a horrible quarter for the world's largest retailer.

Wal-Mart signaled that the second quarter may prove to be more difficult. With the general housing market struggling coupled with ever higher gasoline prices, Wal-Mart is concerned about its customer base holding back on larger purchases. The recent same store sales were among the worst Wal-mart has experienced in decades. The second quarter analysts consensus calls for $.79 earnings per share, but management signaled earnings in the $.75-.79 range. The immediate prospects for Wal-Mart seem challenging. If the company senses any additional weakness in consumer spending, those numbers could come down dramatically. The reason is Wal-Mart is endorsing a 1-2% same store sale model for the second quarter. Any number south of 1-2% hits the operating margins very hard as fixed costs are holding up well, but in a tight range.

Wal-Mart stock is trading down less than 1% this morning. If management indicates that the second quarter will be closer to the $.75 earnings per share number, the stock could see a $2-3 hit further south.

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.