Wal-Mart Rolls On : DLTR, KR, TGT, WMT

A company as immense as Wal-Mart (NYSE:WMT) is not going to show a great deal of turbulence from quarter to quarter, but there's nothing wrong with steady growth and stepwise execution of a solid business plan. To that end, Wal-Mart shareholders have little to worry about, as management continues to balance an overseas growth strategy with a domestic operating efficiency plan. Although Wal-Mart is not especially cheap, it likely remains a reasonably good conservative play on consumer spending in the United States, tinged with some international growth.

Basically Solid Fiscal Fourth Quarter Results
Wal-Mart didn't deliver too many surprises in its fiscal fourth quarter, and investors basically have to go to the right of the decimal points to find much deviation from expectation.

Sales and revenue both rose about 6% for the quarter, with U.S. sales up a little more than 2% and international sales growing more than 13%. U.S. comps were up 1.5% on an even mix of traffic and ticket, with only apparel sales being notably weak. Sam's Club comps were up more than 5%.

Internationally, the company did well overall, with double-digit growth in Walmex and China. Operations in Japan and the U.K. saw low single-digit growth, while Brazilian comps were down a bit.

Wal-Mart chose to sacrifice a little margin to maintain growth and market share. Gross margin declined 39 basis points as the company re-emphasized its everyday low price positioning and boosted in-stock levels (inventories up almost 12%). Operating income rose about 4%, with management recouping some of the lost gross margin and minimizing the operating margin erosion to 10 basis points.

Fine-Tuning Domestic Execution
Wal-Mart knows that torrid revenue growth is not going to happen in the U.S. market anymore, so the company is keenly focused on its operational execution. To that end, the company is investing more in inventory management, holding higher stock levels and buttressing its low-price positioning.

This is hardly good news for the likes of Target (NYSE:TGT) or the extreme discount retailers like Dollar Tree (Nasdaq:DLTR), Dollar General (NYSE:DG) and Family Dollar (NYSE:FDO). Target in particular seems to be struggling to find its way; rivals like Kohl's (NYSE:KSS) have bled away its momentum in "high-end discounting," while Wal-Mart's scale and extreme efficiency make competing dollar-for-dollar a losing proposition.

Wal-Mart also seems to be building on its strengths in food retailing. This is still a somewhat new venture for the company, but the strong comps in food this quarter suggest that the company continues to widen the gap with the likes of Kroger (NYSE:KR) and Safeway (NYSE:SWY).

Ongoing Square Footage Expansion Overseas
While the U.S. business is about execution, the overseas story is still very much about growth. While it is true that many of the major cities in emerging markets like China, India, Brazil and South Africa are well-stocked with stores, it's a much different story outside of those major cities. Said differently, Latin America and China alone can continue to drive very significant growth for some time to go.

It's worth wondering if Wal-Mart's management will consider any sort of split or tracking stock to give investors a more distinct choice between the cash-rich U.S. operations and the growth-rich international business. Yes, there is Wal-Mart de Mexico (OTCBB:WMMVY.PK), but a fuller separation could be of interest to some investors.

The Bottom Line
If consumer spending in the U.S. continues to recover, Wal-Mart will see its share of the benefits, though certainly not to the same incremental extent as mall-based, specialty, or aspirational stores. Likewise, so long as consumer spending in major emerging markets continues to grow, so too should Wal-Mart's international comps.

Wal-Mart has been a market-beater over the past year and sits near its 52-week high. Though the stock is not overvalued today, neither is it cheap. Wal-Mart is a decent enough hold at today's prices, but investors buying today are looking at a pretty narrow margin of safety relative to fair value.