Ahead of the Bell: Wal-Mart

Some analysts expect Wal-Mart Stores Inc. may announce plans Wednesday at its analysts' meeting that it will accelerate U.S. store growth next year. Wall Street is also looking to hear details of more price-cutting strategies as it heads into the holiday season.

Any move to increase store growth would come as the world's largest retailer has come a long way in improving store performance by paring down inventory, offering spruced-up merchandise and remodeling stores.

Wal-Mart's share price soared 13 percent in 2008. However, the stock has slipped almost 6 percent so far this year, as investors focus on beaten-down shares of companies that sell more discretionary items like clothing and home furnishings.

Shares slipped 19 cents to $51.70 Tuesday, below the middle of its 52-week range of $46.25 and $59.23.

Wal-Mart's stock suffered from 2005 to late 2007 as its zigzag between upscale and discount goods slowed sales growth.

"Wal-Mart has earned the right to grow, and it does not sound like it would result in meaningful capital expenditures growth as (year-to-year) square footage growth will likely be similar" to 2009, wrote David Binder, an analyst at Jeffries & Co. in a note published Tuesday.

Binder added that maintaining the growth rate in space while increasing the number of stores it opens could be achieved by opening smaller supercenters.

In the future, he believes that Wal-Mart can be much more flexible and open stores ranging from 99,000 to 175,000 square feet. That compares with its past focus on 195,000-square-foot sites. The company has said it's scaling back the size of its supercenters, which offer food as well as general merchandise.

Binder noted that in recent conversations with management, Wal-Mart has even expressed some confidence in developing supercenters as small as 70,000 square feet.

In fact, Wayne Hood, an analyst at BMO Capital Markets, wrote in a report Friday that he expects Wal-Mart to announce that it's narrowing its guidance for growth in square footage to 4 percent this year from the previous estimate of 4 percent to 5 percent. That compares with 5.9 percent last year.

Wal-Mart spokesman John Simley declined to comment about any announcements the company will be making during the two-day analysts' meeting, to be held in Rogers, Ark., several miles from its headquarters in Bentonville, Ark.

Analysts also are looking to hear about more details of Wal-Mart's aggressive pricing strategies as it heads into the holidays.

Wal-Mart started a fierce price war on books on Thursday, announcing that its online site, Walmart.com, would charge just $10, with free shipping, for upcoming hardcover releases as Sarah Palin's "Going Rogue" and John Grisham's "Ford County." That's 60 percent or more off the regular cost.

Amazon.com, the largest online book seller, then matched the prices. The fight became even more heated when the two competitors lowered the prices even further to $9 by Friday. Discount rival Target Corp. threw itself in the ring on Monday, announcing it was matching Walmart.com and Amazon.com prices for seven highly anticipated book titles for pre-ordering on its Web site.

Also last week, Walmart.com started selling an array of personal care products. Last month, Wal-Mart announced that it was expanding its $10 holiday toy assortment to 100 items.

"We don't believe management is saying with these initiatives that they are willing to lose money on them; rather, we believe they are saying that they can drive sufficient volume to be profitable," wrote Hood.

Hood doesn't expect Wal-Mart to update its third-quarter earnings outlook of 78 cents to 82 cents per share or change its guidance for sales at stores opened at least a year. Wal-Mart expects that this metric - considered a key indicator of a retailer's health - should be in the range of flat to up 2 percent.

Analysts surveyed by Thomson Reuters expect 81 cents per share in the third quarter.