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Wal-Mart Stores (WMT - Free Analyst Report), the world's largest retailer, has reported share earnings for fiscal 2010's second quarter (ended July 31st) of $0.97 versus last year's tally of $0.88 and our estimate of $0.99. The year-to-year increase of 10% reflects contributions from Wal-Mart's fast-expanding International division, cost-cutting measures at the domestic operations, and a lower share count. Indeed, the company repurchased about 80 million shares (2.2% of the total) for $4.1 billion in the quarter.

At the same time, however, comparable-store sales at Wal-Mart's core U.S. operation declined 1.8%. This downward pressure has persisted for 15 months, and it appears to be largely because Wal-Mart has a disproportionately large percentage of its stores in areas of particularly high unemployment. In addition, there is increasing competition from more and more store openings by the ``dollar'' chains, such as Dollar Tree (DLTR) and Family Dollar Stores (FDO).
 
In light of the slight shortfall from our second-quarter estimate, we've lowered our targets for this fiscal year and next by $0.05 a share each, to $4.00 and $4.40, respectively. Still, we had higher expectations than management’s prior guidance. Thus, our current 2010 forecast falls at the high point of the company’s new range, which was increased by a nickel at both ends.

Investors traded these shares up slightly following the news. Over the 3- to 5-year time frame, meanwhile, this stock offers attractive risk-adjusted total return potential.

About The Company: Wal-Mart Stores, Inc. is the world’s largest retailer, operating 2,747 supercenters (includes sizable grocery departments), 803 discount stores, 596 Sam’s Clubs, and 158 Neighborhood Markets in the U.S., plus 4,112 foreign stores, mainly in Latin America, with the balance in Asia, Canada, and the U.K. The company operated 952 million square feet of total store space at the end of its 2009 fiscal year. Most stores are owned and are within 400 miles of an expanding network of distribution centers. Groceries accounted for just over half of U.S. sales last year, while sales per square foot was about $440.