* Wal-Mart meets with analysts and investors Oct. 11-12
* U.S. same-store sales down for nine consecutive quarters
* Investors want to see sustained U.S. sales growth
* Shares relatively flat versus a year ago
By Jessica Wohl
Oct 7 Wal-Mart Stores Inc's
international business is growing. Its Sam's Club warehouse
unit shines. Its expanding online operation is being revamped.
Still, investors largely care about just one thing: can the
retail giant finally fix its U.S. stores?
The world's largest retailer has 9,700 stores, including
3,830 U.S. Walmart locations. It is those shops -- Walmart
supercenters, Neighborhood Market grocery stores and the new,
small Walmart Express format -- that analysts and investors
most eagerly want to hear about during Wal-Mart's 18th annual
meeting for the investment community.
While the company has been bringing back more items
offering everyday low prices and expanding services at the
stores, sales have remained in a prolonged slump.
Wal-Mart shares have lost about 8 percent of their value
since January. The shares jumped 1.8 percent on Friday,
bringing them to $53.70, roughly in line with their value
during last October's investor event.
"The key catalyst to drive Wal-Mart's share price higher is
for the U.S. division to deliver positive comps on a consistent
basis. That's it, in a nutshell," said Channing Smith,
co-manager of the Capital Advisors Growth Fund . "That
is what investors focus on and that is why the stock has gone
Sales at the stores open at least a year, a key metric
known as comps or same-store sales, have fallen for nine
straight quarters, a decline Wal-Mart aims to stem this year.
Such sales fell 0.9 percent in the second quarter which ran
from May through July, an improvement from earlier but still a
drop. Same-store sales rose in July itself.
THE DOLLAR STORE DILEMMA
Walmart's discount chain accounts for nearly 11 percent of
U.S. retail sales. Logic would suggest that shoppers looking to
save would head to one of its stores as the company has been
known for value on a variety of goods for nearly 50 years.
However, chains from dollar stores to Target Corp
to Aldi have won over frugal shoppers by selling more food and
other necessities. Shoppers who used to drive over to a big
Walmart now find such other chains more convenient, with what
they see as better or comparable prices.
"It almost seems as if Walmart has lost its identity as a
low-cost leader," said Smith, who said Wal-Mart shares account
for about 3 percent of his fund's portfolio.
Wal-Mart has been bringing back more than 8,500 items from
fishing rods to thread to woo shoppers who went elsewhere after
de-cluttering its stores flopped. It now touts its own low
prices and that it matches other stores' advertised prices.
It is also building some smaller stores, shipping online
purchases to stores for free and even gathering up some items
for shoppers to keep them from having to do the work.
But it faces stepped-up competition. Dollar General
and Family Dollar each operate more U.S. locations than
Walmart, are growing same-store sales and are adding hundreds
"The dollar store industry has grown wonderfully the last
few years and has really taken market share from Walmart," said
John Champion, retail strategist and senior partner at Kurt
Salmon. "They're not ignorant of that. They're thinking about
ways that they can address that."
Kurt Salmon's Champion said he would like to hear more
about Wal-Mart's small format strategy, which he thinks it will
take time to tinker with before a major expansion.
Neighborhood Market, the company's mid-sized concept,
debuted in 1998 and today has roughly 185 locations.
Champion, for one, does not expect Wal-Mart's comments at
its investor meeting to "move the needle a whole lot," in terms
of the share price.
One economic change that may work in Wal-Mart's favor is
the recent decline in gas prices. Barclays analyst Robert Drbul
estimated that a 10-cent per gallon drop in gas prices could
add as much as $13.8 billion to the U.S. economy annually.
"With gas prices down more than $0.50 from May, Walmart is
positioned as arguably the largest beneficiary to any
incremental disposable income available to the U.S. consumer,
particularly at the lower end," Drbul wrote on Friday.
He has a $62 price target on the shares.
Capital Advisors' Smith said he likes Wal-Mart's dividend
and valuation and called it a "great franchise."
"It should be a $65 stock if the U.S. same-store sales
accelerate," he said.