Can Wal-Mart Deliver This Chilly Christmas Season?

Will the Grinch steal Christmas from Wal-Mart?(WMT Quote).

The File

Operations

Business: operates discount retail stores - Wal-Mart, Sam's Club, Wal-Mart SuperStores

FY 2000 Revenue: $165 billion

FY 2000 Earnings Per Share: $1.28

2001 Estimated Earnings Growth: 13%

Stock Snapshot

52-Week Range: $41.44 - 70.25

Percentage Change from Jan. 1: --28%

Market Cap: $215.5 billion

P/E Multiple: 34.5

Shares Outstanding: 4.5 billion

He might be sneaking around, but Wal-Mart won't let him get a hand in their stockings. In addition to announcing meeting third-quarter earnings expectations of 31 cents a share on Tuesday, the giant discount retailer said it looked just about on target for the fourth quarter, despite the potential detrimental effects of a slowing economy on consumer spending. However, there were some Wal-Mart's earnings increased by 5.5% in the third quarter, well below their long-term average growth rate of 15%. Wal-Mart also said sales were up 13% to $45.7 billion.

But the Grinchlike economic conditions may take a bite: With the economy slowing, oil and gas prices rising, and personal spending tightening, it looks as though the retail sector, including Wal-Mart and Home Depot(HD Quote), Kohl's(KSS Quote), and J.C. Penney(JCP Quote), might feel the pinch of a downsized holiday season.

A huge fourth quarter last year amid a booming economy led to quarterly earnings of 43 cents a share. During the quarterly conference call Tuesday morning, company executives guided analysts to expect fourth-quarter earnings within a range of 46 to 48 cents a share -- the First Call/Thomson Financial consensus estimate had been 48 cents. But is the growth slowdown a cause to worry? Morningstar analyst Mark Sellers says no, the company is just "sensitive to the broader economic condition," and will still prevail in the long run.

"The management is conservative in their financing, and I still see a lot of growth, especially international growth," for Wal-Mart, Sellers said.

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The latest expansion effort that Wal-Mart has undertaken was a reconstruction of its Web site, Walmart.com. Taking the entire site off line for 28 days in October was perhaps a peculiar approach, and the reborn site has since received mixed reviews. The aesthetically basic e-tailing site lacks the luster of other sites, but perhaps the simplicity of decoration was meant to mirror Wal-Mart's physical stores and address the fact that many of their customers may not have high-end PCs that are equipped to speedily transmit bells and whistles.

The stock hasn't been impervious to the tough market this year, buckling almost 28% since Jan. 1 and 18% in the past 12 months. But it has bumped up a bit this week on the earnings report, and the stock ended the week at $48.5625. While Sellers recommends a purchase of the stock, he acknowledges that the recommendation is "not as strong as a couple weeks ago [when the share price was] at $43," and that it's "on the border now" of being too pricey.

The funds below, which have big stakes in Wal-Mart, hope the house of Sam Walton can deliver like Santa this Christmas and justify the rising price.

Funds With the Biggest Stake in Wal-Mart
Fund	Percentage of Assets in WMT	1-Week Return	YTD Return
(USGLX Quote)U.S. Global Leaders Growth	7.3%	-0.1%	3.4%
(FOCTX Quote)Legg Mason Focus	6.2	-3.3	-15.9
(PCFIX Quote)PIMCO Select Growth Instl	5.3	-3.2	-2.7
(CFLGX Quote)Smith Barney Diversified Large Cap Growth A	4.8	-2.3	-10.9
(PRNEX Quote)T. Rowe Price New Era	4.5	1.9	11
(FPETX Quote)Regions Growth B	4.1	-1.9	-14.5
(APGEX Quote)American Performance Growth Equity	3.9	-3	-16.2
(TGLGX Quote)TCW Galileo Large Cap Growth I	3.9	-3.7	-14.6
(IOPEX Quote)Independence One Equity Plus Tr	3.7	-2	-8.4
(WQCEX Quote)Wright Major Blue Chip Equities	3.7	-2.1	-7.6
Source: Morningstar. Performance through Nov. 17.

Background Check Check out these recent TheStreet.com stories on Wal-Mart

Wal-Mart Nudges Fourth-Quarter Earnings Target Lower (11/14/00) : Wal-Mart (WMT:NYSE - news), the world's biggest retailer, expects to report fourth-quarter earnings that may fall slightly short of analysts' expectations . . . more

Wal-Mart's Same-Store Sales Grew 4.8% in September (10/2/00) : Wal-Mart, the nation's largest retailer, said Monday that its same-store sales grew 4.8% in September and announced it would speed up plans to open more than 300 stores in the U.S. and overseas next year . . . more

Retail's Summer Swoon Has Even Wal-Mart on the Run (8/8/00) : Investors expect more from Wal-Mart. That could explain why recent weeks have seen the superstore retailer's shares take a pounding along with lesser rivals, amid concerns of slow summer sales. In fact, the speculation got so bad that on the last day of July, Wal-Mart shares fell more than 6% . . . more

Wal-Mart CEO Glass Steps Down (1/14/00) : Longtime Wal-Mart chief executive David Glass, who oversaw a vast expansion of the retailing giant during his 12-year tenure, will step down effective immediately and Lee Scott Jr., current chief operating officer and vice chairman, will take his place, the company said Friday . . . more