Wal-Mart Loses Its Way

05/15/07 - 01:21 PM EDT

Marc Lichtenfeld

Shifting Sales Focus

As I mentioned yesterday, I was closely watching Wal-Mart's international division. Sales in that segment grew 18.5% and represented 23% of total sales. That's up from 21% of total sales in 2006.

Sales at U.S. stores, meanwhile, climbed just 5.6%. Same-store sales for the quarter dropped 0.1% at Wal-Mart stores, compared with a 3.8% rise in the year-earlier period. In the second quarter, Wal-Mart expects comps in the U.S. to rise 1% to 2%.

Until the domestic issues are solved, the international segment cannot afford to slip up.

A mammoth company such as Wal-Mart will always have issues. Indeed, the company is facing its fair share of turmoil -- ranging from townsfolk trying to keep stores out of their area to managers in alleged trysts and spying. But very few of those issues actually affect sales.

What Wal-Mart needs to do is rediscover how to connect with its customers. Shoppers can enjoy a more pleasant experience at Target (TGT Quote - Cramer on TGT - Stock Picks) and elsewhere. Thus, Wal-Mart customers have to be confident they will get extraordinary value for their basic needs, such as with the company's $4 drug program.

While everyone would like to save money on a 42-inch flat panel, I'm not sure that will serve the core customer, nor lead to much incremental business beyond the sale of that TV. Until Wal-Mart finds its way, don't expect a huge improvement in sales.

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In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback; click here to send him an email.

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