By and  on December 9, 2004

NEW YORK — Is Wal-Mart Stores Inc. getting so big — at least in the U.S. — that its expansion is at the expense of sales growth? At least one analyst thinks so, and another sees continued lackluster sales at the world’s biggest retailer.

Goldman Sachs equity analyst George Strachan downgraded shares of the company Wednesday, citing the potential negative impact of Wal-Mart’s expansion plans on the company’s waning same-store sales momentum.

An analyst with First Global also dropped the rating on Wal-Mart’s stock to “market perform” from “moderate outperform.”

But several other analysts say it’s too early to tell if Wal-Mart stores would experience a “cannibalization of sales” as it continues to grow its store base in the U.S. Rather, they say, Wal-Mart’s strategy may maintain sales and customer loyalty. Further, the company’s strategy is a successful way to beef up its market share, especially in the grocery store business.

“Because Wal-Mart plans to open 950 Supercenters over the next three to four years, self-cannibalization, or ‘market development’ as the company calls it, could remain a challenging phenomenon, particularly trying in a period when comp-store sales are growing below historic trends,” Strachan wrote in a Wednesday report to clients in which he downgraded shares of the company to “in line” from “outperform.”

Wall Street shrugged off the news, sending shares of the company up 0.02 percent to close at $52.51. Wal-Mart spokesman Gus Whitcomb said the company does not comment on analyst reports or movements.

Strachan said the “self-cannabilization” could be why general merchandise sales have been soft at the retailer of late. Wrote Strachan: “We have been surprised…at how much self-cannabilization Wal-Mart was willing to inflict upon itself. The company deliberately plans to cannabilize its stores when they reach volumes of $100 million or more a year,” which can result in same-store sales declines.

While not yet seeing declines in comps, Wal-Mart reported in early December consolidated November same-store sales that rose 0.7 percent, below both the company’s and analysts’ estimates for a 2 to 4 percent gain. The latest results continued the company’s trend in the past year of sales below historic levels. The company foresees December comps in the ever-important holiday quarter up just 1 to 3 percent.

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