Transcripts

Wal-Mart's World Class Woes

JEFF YASTINE: Wal-Mart, the world`s largest retailer, reports its first quarter earnings tomorrow and investors are expecting numbers that are somewhat soft. But profits aren`t the real problem. As Suzanne Pratt explains, it`s the other issues that have kept Wal-Mart`s stock languishing for years.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world`s largest retailer is battling a list of troubles as varied as inventory in one of its superstores. First, its reputation is at an all-time low, due in part to a scandal involving its former vice chairman and accusations of expense account fraud. On top of that, Wal-Mart has made a number of merchandising missteps, especially when compared to competitors like Target. And finally, sky high gasoline prices have kept core lower income customers away from stores. It should come as no surprise then that Wal- Mart`s stock has been flat for the last five years. Some analysts also blame the stock`s underperformance on lackluster same store sales. Bear Stearns, which has done securities related business with Wal-Mart in the last year, says Wall Street views those numbers as critical.

CHRISTINE AUGUSTINE, RETAIL ANALYST, BEAR STEARNS: A lot of the same store sales have been driven by food. That is a lower margin business. And, oftentimes investors who buy retail stocks like to see strong top-line growth.

PRATT: The good news is that starting next month, the year over year sales comparisons are expected to get much easier. That`s part of the reason why more than half the Wall Street analysts that track Wal-Mart now rate the stock a buy. Bear Stearns` Augustine is among them.

AUGUSTINE: If investors can see a little bit of a lift in comps and maybe take another look at how strong the balance sheet is and the cash flow characteristics that may bring them kind of back to the table.

PRATT: Other analysts think Wal-Mart shares are undervalued, particularly when investors consider the potential for growth.

STEPHANIE HOFF, ANALYST, EDWARD JONES: We think it`s got very solid long-term growth prospects. We all know Wal-Mart is a maturing company, but in our opinion, it can still grow. It obviously is working to grow internationally, but we do think that there`s still room to grow here domestically.

PRATT: Nevertheless, analysts admit Wal-Mart stock remains vulnerable. Not only are energy costs still high, but the outcome of the company`s expense account scandal is still unknown. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.