PREVIEW-Wal-Mart faces more scrutiny if holiday sales fell

Thu Feb 10, 2011 4:24pm EST

* What: Wal-Mart's U.S. same-store sales in focus

* When: Wal-Mart reports Q4 results on Feb. 22

* Why: Wal-Mart predicted U.S. same-store sales would rise

By Jessica Wohl

CHICAGO, Feb 10 (Reuters) - It may take Wal-Mart Stores Inc (WMT.N) more time than it expected to increase sales at existing U.S. stores, adding pressure to the world's largest retailer and its stock price.

In mid-November, Wal-Mart was giddy about its prospects. It said U.S. sales at its discount stores open at least a year should finally rise after six consecutive quarterly declines.

A strong showing early in the holiday season buoyed those expectations, as the retailer's return to selling a wide variety of discounted goods appeared to be paying off.

Then, several major snowstorms and frigid weather blanketed the country, forcing some shoppers to stay home. Competitors such as Target Corp (TGT.N) said that those who made it to stores hunted for basics like food, bargains and little else, and gas prices rose, adding strain to those on tight budgets.

Now, as Wal-Mart prepares to report its quarterly results on Feb. 22, some question whether it can return to sales growth in its domestic discount chain, its largest business.

"Everybody is sensitive to the sales number," said Gilford Securities analyst Bernard Sosnick. "Whether or not it is caused by the weather, if it comes up short the stock is going to feel a setback."

Wal-Mart officially forecast fourth quarter same-store sales in the range of a 1 percent decline to a 2 percent rise. But back in November, then-CFO Tom Schoewe said that he was confident the company would report an increase. [ID:nN1691422]

Some analysts expect Wal-Mart to miss that goal. Among them is UBS analyst Neil Currie, who cut Wal-Mart to "neutral" from "buy," saying the sales recovery could take time.

Currie now expects that same-store sales at Wal-Mart's U.S. discount stores fell 0.8 percent, down from a prior forecast of a rise of 0.3 percent. [ID:nSGE71909O]

Analysts polled by Thomson Reuters, excluding UBS's Currie, call for sales to rise 0.5 percent to 2 percent, with an average target of a 0.8 percent increase as of Wednesday.

Such sales fell 2 percent a year earlier, and have fallen in smaller percentage terms in each quarter since then.

For a graphic of Wal-Mart and Target's sales performance, click here: r.reuters.com/hab97r

TARGET ALREADY CALLED OUT WINTER WOES

Target releases monthly sales reports, a practice Wal-Mart abandoned in 2009. After topping expectations in November, Target admitted that same-store sales gains in December and January came in below its expectations.

That pressure has been priced into its stock. Target shares fell 8.5 percent from the beginning of the year through Wednesday, while Wal-Mart shares climbed 5.2 percent. Wal-Mart trades at a slightly higher price-to-earnings ratio than its smaller rival.

However, shares of Wal-Mart were down 2 percent in afternoon trade on Thursday after the UBS downgrade.

"In the near term you're probably going to see that the stock could stagnate here," said Channing Smith, managing director at Capital Advisors Growth Fund, which owns Wal-Mart shares and has about $857 million in assets under management.

Under Chief Executive Mike Duke and new U.S. chief Bill Simon, Wal-Mart has sharpened its focus on its core customers, who are shopping as soon as they get their paychecks and generally sticking to what they need. It also just named a new chief merchandising officer, Duncan Mac Naughton, who has a long tenure in the grocery business. [ID:nN28108007]

Smith is confident in Wal-Mart's longer-term prospects, expecting a U.S. rebound with the new plans in place and continued strength in the international business. He expects to see "very good growth starting this year and then really accelerating in the coming years."

It may have been tough for shoppers in suburban and rural areas to drive to Wal-Mart stores as blizzards and other harsh weather hit the country.

UBS's Currie cited a survey of more than 200 Wal-Mart parking lots which showed they were progressively emptier in November, December and January than they were a year earlier.

Plus, an analysis from Global Hunter Securities showed that Wal-Mart shoppers were more likely than those surveyed at 11 other chains to cut back on driving due to higher gas prices.

Meanwhile, dollar stores, which are smaller and dot more urban neighborhoods, have lured shoppers with a wider variety of brand name goods. Family Dollar Stores Inc (FDO.N) has posted 10 consecutive quarters of same-store sales growth.

(Reporting by Jessica Wohl, additional reporting by Renju Jose in Bangalore; Editing by Bernard Orr)