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With the economy taking a licking, can the discount retailers keep on ticking?

That's what investors may wonder this week when discount giants

Wal-Mart

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and

Target

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report their fourth-quarter numbers. Although both companies are expected to report healthy growth in their earnings and overall sales, both have been affected by disappointing same-store sales in recent months. (Same-store sales measure the results of outlets open for more than a year and can be an indicator of how a company is faring against its competition.)

In recent months, Wal-Mart, for instance, has seen its comparable-store sales growth slow to less than 2.5% on a year-over-year basis. That's below the pace of consumer spending, which is growing at about a 3.5% annual rate. While the company is gaining market share nationwide by opening new stores, the comparable-store numbers indicate that individual Wal-Mart outlets may actually be losing market share in the areas in which they operate, notes Rob Wilson of Tiburon Research Group.

"I think there's a good chance they will beat the consensus

earnings projections," Wilson said. "I'm more worried about their comps situation."

Target faces similar troubles. Including its slumping Marshall Field's and Mervyn's operations, the company has posted same-store sales declines in each of the last three months. Taken by themselves, the company's Target stores are growing their same-store sales at an anemic clip of l% or less during that same time period.

To be sure, both companies are growing their overall sales. And the same-store sales slowdown has not had too big an effect on their bottom lines.

In announcing its January sales earlier this month, Wal-Mart, for instance, said it expected earnings of $1.80 per share for its fiscal year, which ended Jan. 31. Since the company had already announced earnings of $1.24 per share for the first nine months of its fiscal year, the announcement implied expected fourth-quarter earnings of 56 cents per share.

Based on the company's previously released monthly sales reports, Wal-Mart should post revenues of more than $70 billion for the quarter. The company's November report did not include the first day of that month, which, although it was the first day of the company's fourth quarter, was counted as part of October's sales.

Wall Street analysts surveyed by Thomson Financial/First Call expect Wal-Mart to post earnings of 56 cents per share on revenue of about $71.5 billion. During the fourth quarter a year ago, Wal-Mart earned $2.2 billion, or 49 cents per share, on $64.2 billion in sales.

Meanwhile, based on its own monthly sales reports, Target should post fourth-quarter revenues of about $13.7 billion just from its retail operations. According to Thomson Financial/First Call, Wall Street analysts are expecting Target to earn 75 cents per share on $14.5 billion in revenue, including the company's credit card business.

During the same period a year ago, Target earned $658 million, or 72 cents per share, on $13.2 billion in total sales.

Wal-Mart's slowing same-store sales don't bother Chuck Cerankowsky, who covers the company for McDonald Investments. Wal-Mart's comparable-sales results topped those of many of its peers during a difficult retail season, he noted.

"I think Wal-Mart's doing fine," he said.

But Wilson notes that Wal-Mart has fewer levers to pull than other retailers to try to boost sales. As a discounter, the company already sells at fairly thin margins, which means that it has little room to further boost sales by dropping prices, he said.

Meanwhile, the company's marketing and administrative costs have increased as a percentage of sales in recent years, Wilson noted. Such costs rose from 16.39% of sales in Wal-Mart's fiscal year ended February 2000 to 16.61% in its fiscal year that ended last February. In the first nine months of last year, Wal-Mart's sales and administrative costs increased to 17.11%.

The increase in sales and administrative costs further constrains the company's ability to cut prices, Wilson notes.

"For some reason, they have never gotten any leverage on SG&A costs," he said. "That's a part of the story that not a lot of people are looking at."

One thing that investors and analysts have been focusing on is the decline in Sam's Club, Wal-Mart's wholesale club division. Sam's Club's same-store sales in January grew by just 0.9% after falling 2.8% in December.

Sam's and other wholesale clubs depend on consumers "trading up" to buy in bulk and on selling discretionary items such as stereos and jewelery, said Cerankowsky. But that's just not happening right now, he said.

"People are being careful," he said.

But John Lawrence at Morgan Keegan said Sam's Club has struggled with something of an identity problem. Wal-Mart has had a difficult time trying to figure out whether Sam's should focus on business customers or consumers and trying to strike a balance with Sam's product mix, he said.

Lawrence said he'll be keeping an eye on Sam's over the next six to nine months to see what kind of new initiatives Wal-Mart puts in place. But he says it's "hard to say" when the company will turn around the Sam's Club division.