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Wal-Mart stuck in neutral?

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Wal-Mart's (WMT) woes seem far from over. The retail giant continues to suffer from slow sales and profit growth.

Wal-Mart posted second-quarter earnings of $1.21 a share, in-line with analysts’ estimates. Revenue beat expectations by about $1.1 billion. However, store traffic in the U.S. fell 1.1%, its seventh quarterly decline. U.S. same-store sales were flat, coming off of five straight quarters of declines. The sluggish U.S. same-store-sales figures were partly due to a drop in sales of food items.

The government cut back on food stamp spending by an average of $90 per family, per month last year. Yahoo Finance Senior Columnist Michael Santoli said a very large percentage of that would probably have gone to Wal-Mart.

It’s a combination of strategic missteps, a stale experience in the stores, as well as long-term headwinds, such as cuts in government income support programs, that Wal-Mart does not really have a great response for, Santoli said.

Wal-Mart has also been facing intense competition from dollar store chains, like Family Dollar (FDO), Dollar General (DG) and Dollar Tree (DLTR). The company has fought back by introducing neighborhood stores. Wal-Mart opened 22 smaller stores last quarter and plans to open up to 200 more this year. Wal-Mart's Neighborhood Market same-store sales rose 5.6% over last year and traffic increased by 4.1%.

"We're encouraged by the performance of our small-format stores and e-commerce, areas where we're investing significantly this year. But we wanted to see stronger comps overall in Wal-Mart U.S.,'' CEO Doug McMillon said in a statement.

Another piece of good news for Wal-Mart is that e-commerce sales were up 24% from last year. The company last week said it plans to give consumers a more customized experience when shopping on its website.

Santoli said Wal-Mart’s e-commerce efforts will not help offset the slowdown in traffic in its retail stores because it is still weak competitor in this space.

Wal-Mart also cut its earnings outlook for the year because of higher-than-expected health care expenses and cost related to investments in e-commerce. The company now expects earnings per share of $4.90 to $5.15 per share, down from $5.10 to $5.45.

As of Wednesday's close, shares of Wal-Mart are down 3% in the last year. “The stock is starting to look very cheap because nobody really expects much in the way of growth, especially domestically, out of Wal-Mart”, Santoli said 

 

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