Wal-Mart Shows Progress, but Investors Expected More

For the second quarter in a row, Wal-Mart Stores (WMT) posted an increase in same-store sales at its U.S. stores. In fact, the 1.5% growth was its best result in nine quarters.

But investor expectations for the retail behemoth have risen, and the stock was trading near its September 2008 highs before the report. The company posted $1.44 in core EPS, a penny below expectations. Shares fell 4% early.

“Wal-Mart’s two quarters of positive domestic same-store sales are coming at the expenses of gross margin,” notes Brian Sozzi, chief equities analyst at NBG Productions. “Management is very focused on driving home its price leadership message, and this ultimately was displayed in an overall gross margin miss in the quarter (24.28% versus 24.61% consensus) plus a full year compression in return on invested capital.”

The market may also be reacting to Wal-Mart’s fiscal 2012 guidance range ($4.72 to $4.92), which encompassed expectations of $4.90, but was on the lighter end.

“Wal-Mart’s fiscal year guidance implies continued investments in price, globally, will require time before they meaningfully impact net profits in a positive manner,” Sozzi wrote.

But Citi analyst Deborah Weinswig urged investors to stick with the stock.

“While WMT’s overall EPS miss may disappoint some investors, we believe the continued momentum (especially in its Walmart U.S. business) demonstrates that the company’s initiatives are gaining traction.”