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Wal-Mart Has a Bigger Worry Than Sales Growth

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Wal-Mart Stores may report flat to slightly-higher sales growth when it announces earnings on Thursday, but there's one measure of the retailer's health that's even more of a concern, according to one analyst: foot traffic in stores.

"The foot traffic trend has been deteriorating at Wal-Mart, pretty much across the entire portfolio, both domestically and internationally," said Patrick McKeever, discount retail analyst at MKM Partners. "To me, it's an important indicator of market share either gains or losses and I haven't been so keen on the trend.”

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In North America, Mexico, Brazil, China and Japan, foot traffic at Wal-Mart Stores (WMT) fell from the third to the fourth quarter of 2012, McKeever noted, adding that he expects to see continued foot traffic sluggishness through the rest of this year.

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Wal-Mart Foot Traffic

Wal-Mart Foot Traffic. Source: MKM Partners

Lower traffic isn't necessarily reflected in the company's revenue, and when shoppers spend more on average per visit, sales may increase even as foot traffic falls, he said.

Yet Wal-Mart's stock has been on the rise, up more than 14 percent year to date. The stock currently trades at nearly $3 over what McKeever considers its fair value: $76 per share.

McKeever said he doesn't recommend the stock and is frankly perplexed by its performance given its slowing foot traffic. To be more positive on the stock, the analyst said he'd want to see a pickup in foot traffic and more consistent sales growth.

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Improving weather and a release of pent-up demand could help sales, however. McKeever expects to see overall same-store sales rise 1.4 percent in the company's fiscal second quarter, with a 1 percent increase at Wal-Mart stores and a 3 percent increase at Wal-Mart's wholesale Sam's Club stores.

McKeever does not own shares of Wal-Mart.

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