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Wal-Mart earnings disappoint: ETFs to watch

Wal-Mart (WMT) dampened investors’ mood before the opening bell yesterday with its drab first-quarter fiscal 2016 performance. The world's largest retailer met our earnings estimate and missed on revenues as higher wages, increased spending on online operations, and a strong dollar took a toll on its results.

Earnings per share of $1.03 was also within management’s guided range of 95 cents to $1.10 per share but declined 6.4% from the year-ago earnings. Revenues slid 0.1% year over year to $114.8 billion, which were also well below the Zacks Consensus Estimate of $116.3 billion.

The mega retailer will continue to invest in global e-commerce initiatives, new wage structure, and workers training. These strategic operational improvements are expected to dilute earnings by 4 cents in the ongoing second quarter and 26–29 cents for fiscal 2016. This would result in earnings of $1.06–$1.18 and $4.70–$5.05 per share for the second quarter and full year, respectively.

The mid-points of both projections are shy of the Zacks Consensus Estimate of $1.17 for the second quarter and $4.86 for the full year. Further, a strong dollar will hurt full-year revenue by a further $10 billion. The company now expects revenues to grow 1–2% for 2016.

Following the earnings announcement, shares of WMT fell as much as 4.6% on the day on elevated volumes of more than three times the normal day. Sluggish trading are likely to continue in the days ahead given that WMT has a Zacks Rank of #4 (Sell) and a poor Zacks Industry Rank in the bottom 35%.

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