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TheStreet Open House

The Challenges the New Wal-Mart (WMT) CEO Must Tackle

NEW YORK (TheStreet) -- New Wal-Mart (WMT) CEO Doug McMillon has his hands full only three days into the new role. The new chief executive and former head of Wal-Mart's international business assumed the position on Saturday, succeeding president Mike Duke.

The megastore chain, due to report full fourth-quarter results on Feb. 20, issued tempered guidance for the quarter below analyst expectations on Friday. Fourth-quarter earnings are believed to be at the low-end or below a previous range of $1.60 to $1.70 a share. For the full year, earnings are expected at or slightly below the low-end range of $5.11 to $5.21 a share.

Analysts surveyed by Thomson Reuters expect fourth-quarter earnings of $1.62 a share and full-year earnings of $5.14 a share.

Wal-Mart expects slightly negative comparable sales growth for both its namesake store and membership-only Sam's Club. Previous guidance had Wal-Mart with flat comps and Sam's Club with growth as high as 2%.

A short-term reason for lower sales was a winter more severe than normal with several debilitating snow storms causing store closures and disrupted foot traffic.

A problem for the long-term, sales were hampered by a reduction in the government's Supplemental Nutrition Assistance Program (SNAP), more commonly referred to as food stamps, which went into effect Nov. 1. The reduction was tied to the expiration of a temporary increase in benefits passed in 2009 as part of economic stimulus efforts.

"The sales impact from the reduction in SNAP ... is greater than we expected," explained Wal-Mart CFO Charles Holley in a statement Friday.

Another ball in the air, The Wall Street Journal reports Monday that Wal-Mart has informed the National Labor Relations Board (NLRB) it was legally allowed to discipline workers for participation in short strikes. The retailer argued non-traditional short strikes could not be distinguished from absenteeism and employees could be dealt with accordingly.

Over the past 24 months, more than 100 employees have walked off the job in protest only to return as normal for their next shift. Two weeks ago, the Labor Relations Board filed a complaint against Wal-Mart for its disciplinary action against workers involved in these short-spurt protests.

But it isn't just problems on Wal-Mart's home turf that the new CEO needs to contend with. The company said international headwinds out of Brazil and China will likely impact fourth-quarter results, too.

In the January-ended quarter, the retailer expects to absorb a 6-cents-a-share hit to earnings resulting from 50 store closures in Brazil and China. Additionally, non-income tax contingencies in Brazil will lower the bottom line by 6 cents a share, while employment claim contingencies will cut it by 5 cents a share. In China, store lease expense charges will diminish profit by 3 cents a share.

Last week, McMillon received a vote of confidence before he had even assumed the top job. Credit Suisse analyst Michael Exstein upgraded the stock on the view the new CEO could "alter WMT's long-term strategies, rather than focusing on repairing short-term issues."

One long-term strategy Wal-Mart is already planning to introduce is a series of "Neighborhood Market" stores, small-store formats with a focus on general merchandise rather than an everything-in-one-place style. Wal-Mart currently operates around 300 of these stores and plans to introduce several hundred more.

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