Wal-Mart's woes: 5 ways it's trying to fix them
Want to know what the future of Wal-Mart (NYSE: WMT) looks like? Take a look at the retailer's fiscal first-quarter earnings results, and you'll get a good indication of where it's headed.
The world's largest retailer on Tuesday disappointed on both the top and bottom lines , but it wasn't all bad news. Two of Wal-Mart's key growth initiatives showed solid growth momentum in the February through April period, proving investments in its smaller stores and the Web are bearing fruit.
The company also cited progress in its massive grocery unit, an area that one year ago topped several analysts' list of gripes. And after last quarter's traffic gains-the first period it trended positive on this metric in more than two years-Wal-Mart again saw more shoppers in its stores in the first quarter, with same-store sales ticking higher in unison.
Investors, however, remained unconvinced in the sustainability of the retailer's turnaround, sending the company's shares nearly 4 percent lower in afternoon trading. Analysts likewise expressed disappointment in the miss, which came against a stronger economic backdrop and lower gas prices.
Read More Is Macy's run over? Why the retailer is falling short
"The comparison was very easy in the first quarter," MKM Partners analyst Patrick McKeever told CNBC on Tuesday. "If anything it looks more like what they did in the fourth quarter, when they surprised to the upside, was a little bit of a one-off."
As it looks to provide a long-term fix for investors, below are five strategies the retailer is employing and where they stand. ( Tweet This )
Wal-Mart's smaller Neighborhood Market stores were once again a bright spot in the retailer's earnings. The shops, which outperformed the U.S. unit's overall sales comparisons and posted a 7.9 percent same-store sales gain, posted growth even as lower gas prices made the drive out to its more rural supercenters more economical.
In the quarter, Wal-Mart opened 15 Neighborhood Market stores-which average about 38,000 square feet-and nine even smaller-format locations. The company has more than 650 Neighborhood Market and small format stores in the U.S.
Wal-Mart's online sales grew 17 percent in the first quarter, including double-digit comparisons "across many departments" in the U.S. Domestically, mobile traffic more than doubled over the period, and the percentage of mobile visitors who made a purchase increased.
Read More Retailers with the biggest online businesses
Wal-Mart has been pulling a number of levers to better compete with Amazon (NASDAQ: AMZN) and boost its digital sales, which account for about 3 percent of its overall revenue . The discounter recently announced plans to take on Amazon Prime by testing a new subscription service that will cost $50 a year-half the price of Prime. It partnered with messaging app Tango so users can make purchases through that company's technology, and is working to improve its online checkout capabilities. But these initiatives came at a cost. Investments in its online business trimmed Wal-Mart's bottom line by 2 cents a share in the first quarter.
In February, Wal-Mart changed the conversation about retail industry wages when it said it would boost 500,000 of its store associates' pay to $9 an hour. It's also piloting a new training program for workers, with plans to expand that initiative over the summer. Though this has helped the retailer do a better job of keeping items in stock, there hasn't yet been a huge improvement in its store operations, said Belus Capital Advisors analyst Brian Sozzi.
"At peak times, let's say Sunday afternoon or Friday evening, the lines are still long," he said. On the company's earnings call, Wal-Mart U.S. CEO Greg Foran said the retailer has pushed forward with the "Checkout Promise" initiative it launched over the holidays, to ensure more registers are open at peak hours.
Though Wal-Mart is doing a better job of having fresh food in-stock, the retailer now needs to focus on improving the quality of the items on its shelves, Sozzi said. That includes training employees to recognize when a piece of fruit is starting to rot. Despite food deflation, Sozzi said he was disappointed in Wal-Mart's grocery sales in the first quarter, adding they should have been stronger given lower gas prices.
Read More Forget discounts-Retailers' new bag of tricks
Grocery accounts for more than half of Wal-Mart's U.S. sales, and the retailer is facing increased competition from fellow big-box store Target (NYSE: TGT), which has made grocery one of its key pillars for growth. Under new leadership in that division, the bull's-eye retailer is shifting its assortment to provide healthier options and an expanded variety of natural and organic items.
Wal-Mart's international segment dragged down its first-quarter results, posting a 6.6 percent drop in revenue. Without the impact of a stronger dollar, Wal-Mart said the segment would have seen sales increase 3.4 percent.
The retailer has been trying to jump-start stalled growth in China, recently announcing plans to open 115 new stores there by 2017. It's also ramping up expansion plans in Canada, and said earlier this month that it will take over 13 locations from Target's brief stint there. David Cheesewright, head of Wal-Mart International, noted particular weakness in the competitive U.K. market.
More From CNBC
