Wal-Mart Earnings Disappoint — Again

If recent sales numbers are any indication, Wal-Mart (NYSE: WMT ) could be
getting a lump of coal in its stocking this holiday shopping season. Earnings
for the third quarter reported Tuesday continued the recent downward spiral for
the big-box retailer. Costs ate up sales gains at Wal-Mart, profits shrank and
the big-box giants full-year forecast was slightly lower than analysts expected.
It's just the latest in a disappointing stretch of quarterly reports that show
other discounters are thriving and the king of retail has fallen on hard times
and that a much-needed turnaround might be unlikely amid the crucial holiday
shopping period. The worlds largest retailer has struggled with same-store sales
weakness in the U.S. It's counterintuitive, since persistently high
unemployment would appear to work in the favor of discounters like Wal-Mart. But
the fact is, smaller bargain shops like Dollar General (NYSE: DG ) and Dollar
Tree (NASDAQ: DLTR ) have been eating Wal-Mart's lunch. Dollar Tree has seen
12 straight quarters of year-over-year profit growth, and Dollar General has
seen 10 in a row. Meanwhile, Wal-Mart has struggled just to stay stable.
Same-store sales had slumped for nine consecutive quarters before the latest
earnings report snapped that slide. And unfortunately, even though WMT sales and
revenue have improved this past quarter, there was little impact on the bottom
line. Margins slipped and the cost of sales rose 8.9% meaning stronger Wal-Mart
sales didn't translate into profits this time around. Hence a profit of just
$3.34 billion, down from $3.44 billion a year earlier. Shares of Wal-Mart opened
about 2% lower this morning. But if you look at the broader downward trend of
the stock, investors should be wary of seeing WMT as a bargain after this
selloff. Shares had popped to a new 52-week high before earnings, but the
disappointing numbers indicate there might have been some irrational enthusiasm.
What's more, even after this "pop," shares were only up 7% in the last
year beating the market by a tad, but hardly impressive. It seems a risky
proposition to depend on a brisk holiday showing from Wal-Mart in the fourth
quarter after these earnings, so perhaps it is best to steer clear of this
retailer for now. Jeff Reeves is the editor of InvestorPlace.com. Write him at
editor@investorplace.com , follow him on Twitter via @JeffReevesIP and become a
fan of InvestorPlace on Facebook . As of this writing, he did not own a position
in any of the aforementioned stocks.