Between market close on February 14 and 2:30 p.m. on February 15, shares of Wal-Mart Stores (NYSE: WMT) fell 3.3%, to $68.49 from $70.82.

The reason? Leaked emails that pointed to a less-than-stellar start to the year for the giant retailer. One of the messages, quoted by Bloomberg, was from Jerry Murray, the company’s vice-president of finance and logistics, to other senior executives.

“In case you haven’t seen a sales report these days, February MTD [month-to-date] sales are a total disaster,” Murray wrote in a February 12 email. “The worst start to a month I have seen in my ~7 years with the company.”

Bloomberg also quoted an earlier email from Cameron Geiger, senior vice-president of Wal-Mart U.S. replenishment, fretting over end-of-January sales. “Have you ever had one of those weeks where your best-prepared plans weren’t good enough to accomplish everything you set out to do?” he asked in a February 1 email. “Well, we just had one of those weeks here at Wal-Mart U.S. Where are all the customers? And where’s their money?”

Payroll Tax Increase Gives Wal-Mart Execs Fits

The executives’ worries centered around the expiration of the payroll tax holiday in early January, which raised Social Security taxes on the first $113,700 of Americans’ wages by 2%.

“A 2% hit off the top for the average person is meaningful,” Michael Wilson, head of research at Morgan Stanley, told Reuters in early January. “It will change their spending behavior.”

According to Wal-Mart’s own analysis, which Bloomberg said was attached to Murray’s email, that 2% hike translates into about $15 a week for the average person. Wal-Mart also said that about $19.7 billion more in tax returns had been sent out at this time last year than in the first few weeks of 2013. The holdup is the partly due to increased government security measures to prevent tax fraud.

Added to these troubles were revelations of horse DNA being found in packages of beef Bolognese sauce at Asda, a supermarket chain in the U.K. that Wal-Mart owns. The tainted-food scare was touched off after a number of lasagnas made at a plant in Luxembourg were found to contain 60% horsemeat, according to a February 13 Bloomberg article. In a February 14 press release, Asda said it had withdrawn the Bolognese sauce, as well as other products from the same supplier.

Tax Worries Could Be Overblown

Despite these setbacks, the company still has many advantages over the competition. That’s partly because being the world’s biggest retailer gives it economies of scale that let it undercut the competition while still turning a profit.

Moreover, recent figures continue to point to gathering strength in the U.S. economy. If that momentum continues, it could offset the effect of the payroll tax and a recent rise in gas prices. According to Bloomberg, the Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 76.3 in February from 73.8 in January. Bloomberg cites rising property values and strength in the stock market (which recently hit five-year highs) as the reason for the increased optimism.

As well, the tax-return delay should simply move sales that would have occurred in Wal-Mart’s previous quarter into the current one. And even if the recovery remains sluggish in the U.S., the company’s everyday low prices should continue to give help it compete with dollar stores, like Dollar General (NYSE: DG) and Dollar Tree (NasdaqGS: DLTR).

“I think Wal-Mart is quite well positioned actually,” Stewart Samuel, a senior analyst with food and grocery researcher IGD, told Reuters on February 21. “If there is any sort of trading down, Wal-Mart will benefit from that.”

Quarterly Results Put Recent Troubles in Context

Wal-Mart reported its latest quarterly results on February 21. In its fiscal 2013 fourth quarter, which ended January 25, the company’s sales rose 3.9%, to $127.1 billion from $122.3 billion a year ago.

Sales rose 2.6% at the U.S. stores (which supplied 58.7% of Wal-Mart’s revenue), 6.9% internationally (30.0% of the total) and 3.4% at its Sam’s Club discount stores (11.4%).

As Elliott Gue pointed out in an August 17 article in our Personal Finance newsletter, the company’s international sales continue to grow at a faster pace than in the U.S. As well, Asda, which accounts for less than 10% of Wal-Mart’s total sales, represents the company’s only direct exposure to trouble-prone Europe. The company also continues to expand rapidly in emerging markets like China, India, Brazil and Africa.

Earnings from continuing operations rose 7.9%, to $5.6 billion from $5.2 billion. That was partly due to a lower-than-expected tax rate (27.7% versus 30.9% last year).

Wal-Mart also reduced its share count through buybacks. Over the full fiscal year, the company spent $7.6 billion to repurchase 113.2 million shares. As a result of fewer shares outstanding, earnings per share rose 10.6%, to $1.67 from $1.51. That topped the consensus forecast of $1.57, but sales missed the Street’s estimate of $127.8 billion.

For fiscal 2014, Wal-Mart expects to earn between $5.20 and $5.40 a share, up from $5.02 in fiscal 2013. The company also raised its dividend by 18%, to a yearly rate of $1.88, which gives the stock a 2.67% yield.

Thanks to the improved results, Wal-Mart shares regained most of the ground they lost due to the leaked emails. The stock currently trades at around $70.40.

Wal-Mart Still Stacks Up Well Against the Competition

Wal-Mart’s balance sheet is also healthy, with cash and cash equivalents of $7.8 billion, up from $6.6 billion a year ago. The company has also whittled its long-term debt down to $38.4 billion from $44.0 billion a year ago.

Worries about tax changes and weaker consumer spending have weighed on the company’s share price in the last three months, but it’s still up nearly 20% in the past year. And even with that gain, its price-to-earnings ratio still looks attractive, with shares trading at 14.03 times Wal-Mart’s last 12 months of profits, roughly in line with competitor Target (NYSE: TGT) and ahead of Costco (NasdaqGS: COST), which trades at a high 24.9 times earnings. On a forward basis (or taking the current share price and dividing by the mid-point of Wal-Mart’s forecast fiscal 2014 per-share earnings), its p/e ratio drops to 13.3.

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