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Wal-Mart Feels The Squeeze

Wal-Mart: good earnings, but no significant sales growth on the horizon, and the stock price is reflecting that fact.

Wal-Mart has dramatically underperformed the market since the March lows:

Wal-Mart: up 8 percent

Retail index up 59 percent

S&P 500 up 49 percent

Wal-Mart did beat earnings expectations, but as David Berman and others have pointed out, Wal-Mart beat earnings with VERY STRONG gross margins (24.9 percent). This sounds good, but remember--Wal-Mart is the low-cost leader. One would have thought they would sacrifice gross margins to keep lowering prices, but they did not!

As for sales, they were weak: U.S. comp stores decline 1.5 percent, well below expectations. Q3 comp store guidance of up 0 to 2 percent is also disappointing.

One reason comp store sales declined: deflation hurts grocery sales, though the good news here is they do appear to be gaining market share.

Wal-Mart stopped reporting monthly comps a few months ago.

One piece of good news: inventories continue decline for the third sequential quarter.

Bottom line: consumer spending remains soft.

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Questions? Comments? tradertalk@cnbc.com


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