By JOHN JANNARONE
Wal-Mart Stores has a new line in everyday low sales.
Shares in the world's largest retailer fell Tuesday after it reported a seventh straight quarterly decline in comparable-store sales at its key U.S. locations. The good news: Business is much healthier at its international stores, which posted a 12% sales increase last fiscal year. Unfortunately, 73% of total segment operating profit still comes from U.S. Wal-Mart stores, making a domestic turnaround critical.
Have investors punished the company enough? The stock is down slightly since the start of 2009, while the S&P 500 has gained more than 50%. Wal-Mart trades at 12 times the midpoint of the company's earnings projections for the year through January 2012, near a record low.
But Wal-Mart still looks like a value trap. First, its core customers have less income than the average shopper at rival Target and probably have benefited less from the economic recovery. Government transfers, such as food stamps, already are at historically high levels, and there is no clear sign the government is ready to ramp them up further. That leaves Wal-Mart highly dependent on job creation before its cash-strapped shoppers spend more freely.
In the meantime, loose monetary policy likely has helped spark inflation in categories like food and oil, squeezing household budgets further. Expensive gasoline also could deter customers from driving to the nearest Wal-Mart and instead opt for neighborhood shopping centers.
Just as concerning are signs that Wal-Mart is losing business to rivals of different shapes and sizes. Customer traffic at U.S. stores has declined for five straight quarters. Meanwhile, sales have surged at discounters like Dollar Tree and Family Dollar Stores. A recent study by Wells Fargo showed that those chains often charge less than Wal-Mart, though they carry a much smaller selection of items.
Online competition also has become fiercer, especially in categories like electronics. Monday,Best Buy said it planned to slow expansion of its classic big-box stores over the next two years, instead adding small-format stores that sell smartphones. That's likely a response to rising sales at online retailers like Amazon.com that easily can undercut brick-and-mortar stores on price. Wal-Mart also plans to open more small stores, but those locations will take time to open and will struggle to have a meaningful impact on sales.
Wal-Mart has had plenty of time to address its sales slump. Tuesday, it announced a plan that included a re-emphasis on everyday low prices. While that should recover some lost sales at the margin, the stock is unlikely to respond without higher job creation among its core shoppers. That could mean a long wait for investors.
Write to John Jannarone at john.jannarone@wsj.com
