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Stock Analyst Update

Wal-Mart Continues to Be a Core Holding

Despite a weak retail environment, the company is on the right track.

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What Happened?
Wal-Mart (WMT) said Monday that it will increase square footage by approximately 8% in the coming fiscal year, which begins February 1, 2001. The company also announced that same-store sales, or sales at stores open more than a year, grew 4.8% during September, down from 7.6% last year. At an analysts' meeting later in the day, CEO Lee Scott said the company expects this tepid sales growth to continue for the remainder of the fiscal year.

What It Means for Investors
Despite unpredictable U.S. and European consumer spending environments, we think Wal-Mart's shares look attractive at their current price of $46.25. The company continues to be the quintessential category killer in the retail industry and has a clear plan for growth. Although Wal-Mart has made some mistakes recently in its international division, most notably in the German market, it is executing flawlessly in almost every other area. The company has improved its asset efficiency and inventory turns dramatically over the past five years, resulting in improved cash flow and lower costs. The slowdown in September same-store sales growth can be almost wholly blamed on a slow consumer spending environment instead of company-specific problems. Thus, we think long-term investors would be wise to make Wal-Mart a core portfolio holding.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.