Low Bar Set for Wal-Mart

Investors will want to hear how these programs are going, and they likely will pay close attention to margins to see if there is any shift due to a better product mix.

I suspect Wal-Mart's margins will be pinched because of a host of factors, including markdowns, the store remodels and perhaps, to a lesser degree, currency issues.

With sales as weak as they've been, Wal-Mart likely engaged in discounting to move products off the shelves. Meanwhile, the store remodels not only increase expenses, they are also disruptive to sales. Lastly, with so much of Wal-Mart's merchandise manufactured overseas, the weak dollar may increase the company's costs, and the company is unlikely to be able to pass along those expenses to its customers.

I'll be keeping an especially close eye on international sales. In fiscal 2007, which ended in January, Wal-Mart's international sales comprised 34% of total sales, up from 28% in fiscal 2006.

Sales grew 30.2% internationally during the year, compared with just 7.8% growth in the U.S. Clearly, overseas sales are a vital component of the company's growth.

Wal-Mart has made some solid acquisitions in Brazil and Japan, which should aid growth. Without a strong performance internationally, the company's projected 12% long-term growth rate could be in jeopardy. According to the blog Contrahour, Wal-Mart's price-to-earnings ratio is at a 20-year low. If the international business isn't as strong as anticipated, look for the P/E to head even lower.

Wal-Mart will be a buy again, perhaps even in the near future. Once the market digests the company's negative macro comments and investors start to see some progress on store remodels and movement of higher-margin merchandise, the growth projections may be more attainable, and as a result the stock's multiple should reflect that confidence.

But this isn't a story where I would try to anticipate the turn. You're better off waiting for proof that things are working.

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