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Wal-Mart earnings preview

Major US retailer Wal-Mart reports second-quarter results on Thursday before trading begins on Wall Street and will be closely watched for clues about the retail sector as a whole.

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Wal-Mart Stores, one of only two retailers in the Dow Jones Industrial Average, had a bit of a wobble the last time it reported, showing a drop in same-store sales for the first time in two years, for which unseasonal weather was given the blame.

This time around Wall Street analysts are expecting the world’s largest retailer to report earnings of $1.25 per share on revenue of $118.7 billion, including 0.7% revenue-growth at US stores open for more than one year. That compares to $1.19 per share on sales of $113.53 billion seen for the same quarter in 2012.

Wal-Mart commands such a large portion of core US retail expenditure (that is, excluding vehicles) that it is considered a bellwether of consumer spending. Consumer spending, in turn, makes up around two-thirds of US GDP and therefore Wal-Mart’s results will be closely watched by investors for clues about the US economy as a whole and the retail sector specifically.

It is an important time for retailers, with the ‘back-to-school’ season just beginning, which is second only to the Christmas holiday season in terms of sales. Although the US economy has been showing signs of improvement in terms of employment and housing, the retail sales environment remains challenging; federal tax hikes this year alongside tepid wage advances means less take-home pay for Middle America.

Teen-oriented clothing retailers Aeropostale and American Eagle both slashed forecasts last week, warning of softer sales, as did department store Macy’s today, with middle-class shoppers thinking twice about paying for non-essential items, but Macy’s CEO Terry Lundgren described the back-to-school season as encouraging so far. Against this backdrop, investors will scrutinise any details Wal-Mart offers on back-to-school shopping behaviour.

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