September Softness Saps Wal-Mart

Investors were disappointed by the retailer's September sales estimate, though some analysts see improvements in the months ahead

Wal-Mart (WMT) didn't find a lot of smiley faces on Wall Street Monday. Investors rolled back the price of the stock by nearly 2% after the giant retailer announced disappointing September sales growth.

The Bentonville (Ark.)-based retailer said in a Sept. 30 press release that it estimated comparable-store sales growth for the September five-week period -- extending from Aug. 26 through Sept. 29 -- at approximately 1.8%. The company noted that "we were against strong comparisons in geographic areas affected by last year's hurricanes and also in specific categories impacted by hurricane preparation and recovery. Wal-Mart will post official sales for the September period on Oct. 5.

Investors sold the stock on the news. The shares traded down 98 cents, or 2.0%, to 48.34 on Monday. (The stock's 52-week high of 50.87 was reached last November.)

Despite Monday's decline, Standard & Poor's stuck with its 5-STARS (strong buy) recommendation on the stock. In a research note issued Monday, analyst Joseph Agnese noted that the company's September forecast was below his projection of a 2.2% increase, but was near the midpoint of the company's prior 1%-3% guidance range.

Agnese figures comp-store sales will continue to be driven by higher register tickets -- meaning that the average customer will spend more per visit -- as consumers cut back on fill-in trips during the week in favor of stock-up weekend visits.

Agnese expects comp-store sales to improve throughout the rest of fiscal 2007 (ending January) as the chain achieves "significant" remodeling progress by the end of its October quarter. The analyst kept his fiscal 2007 EPS estimate of $2.92, and his 12-month target price of $56.

Banc of America Securities analyst David Strasser also indicated that Wal-Mart's results had come up short, as he had expected the sales figure would be at the high end of the range. "With lower gas prices and Target's (TGT) mid-month optimism, we had hoped for better results, he wrote in a research note released Monday. Strasser thinks that store remodels, hurricanes, and the company's running out of stock on certain sale items could have affected September sales.

"Despite the recent drop in gas prices, both Wal-Mart and Family Dollar Stoes (FDO) disappointed in September leading us to believe that the low end consumer continues to struggle," Strasser wrote. "In general, we believe retail moderated in late September from its strong pace earlier in the month."

Still, Banc of America maintains a positive view on Wal-Mart, and Strasser believes that the stock will outperform through the end of the year, as "we anticipate a reacceleration of [comparable-store sales] post the completion of the remodels in October." The firm maintains a $53 target price on the stock.

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