Wal-Mart's Big Problem Isn't Fixed

Wal-Mart (NYS: WMT) shares were on an upward trajectory today after it reported second-quarter results, but many investors appear to be ignoring the fact that one of the discount giant's major recurring problems -- flagging U.S. same-store sales -- still isn't showing signs of improvement.

Second-quarter income from continuing operations increased 5.7%, to $3.8 billion, or $1.09 per share. Total sales increased 5.5%, to $108.6 billion, including a currency exchange-rate benefit of $2.3 billion.

Total U.S. same-store sales were flat; Wal-Mart's warehouse discounter, Sam's Club, showed strength with its 5% increase in comps. However, Wal-Mart's U.S. comps decreased by 0.9%, marking the ninth consecutive quarterly decrease in the metric. As was the case last quarter, this part of Wal-Mart's engine is still stalled out.

In another parallel to last quarter's tidings, Wal-Mart's international sales provided a bright spot, increasing 16.2%, to $30.1 billion.

Another recurring theme is Wal-Mart's cautionary tidings about lower-income American consumers. The pressures these consumers face, given high levels of unemployment, have proved to be a drag on Wal-Mart's U.S. sales as customers lighten their shopping carts. They've probably also driven the most budget-conscious shoppers through the doors of even cheaper retail rivals, such as Dollar General (NYS: DG) and Family Dollar (NYS: FDO) .

Wal-Mart still needs to try to find customers from somewhere to boost its U.S. sales; that's easier said than done, since higher-income consumers are probably still more strongly drawn to discounters such as Target (NYS: TGT) and Costco (NAS: COST) .

It's not all bad news at Wal-Mart, but the news isn't that good until it gets U.S. sales on a stronger footing again. As much as the international sales growth is heartening, investors should avoid the shares until Wal-Mart shows more signs of strength on its home turf.

At the time thisarticle was published Alyce Lomaxowns no shares of any of the companies mentioned. The Motley Fool owns shares of Costco and Wal-Mart.Motley Fool newsletter serviceshave recommended buying shares of Wal-Mart and Costco and creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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