Ahead of the Bell: Wal-Mart shareholders' meeting

With Wal-Mart Stores Inc. among the few bright spots in retailing, shareholders will have reason to cheer as they descend at the world's largest retailer's annual meeting Friday.

But they will also be looking to hear more specifics from executives about how the discounter will thrive and retain its new shoppers once the economy recovers.

Wal-Mart has been rapidly gaining market share and customers around the globe as its renewed emphasis on low pricing and the right mix of marketing and merchandise have come together just as the economy began to sour.

The retailer has cleaned up its stores, upgraded its customer service and spruced up its merchandise. It's hoping that an improved shopping experience will keep its new customers once economic conditions improve.

Thousands are expected to pack the University of Arkansas arena in Fayetteville, Ark., about 30 miles from the company's headquarters in Bentonville on Friday.

"Even though this is the most challenging economy we've faced in decades, certainly we feel good about the business," Mike Duke, who became the company's new CEO and president on Feb. 1, said in a pre-recorded address to investors last month. Duke had been vice chairman of Wal-Mart's international division.

Still, after enjoying a 20 percent surge in its stock price in 2008, Wal-Mart has seen its shares fall 10 percent so far this year as Wall Street turns to retailers that sell more discretionary goods and could benefit when the economy improves. That has driven up share prices for such merchants as Macy's Inc. and Minneapolis-based Target Corp., both of which suffered steep share declines in 2008.

Wal-Mart's earnings and sales performance continues to be a standout compared with the rest of the retail industry.

Including Wal-Mart, the same-store sales index from the International Council of Shopping Centers-Goldman Sachs has averaged a 0.5 percent decline so far this year compared with last. Without Wal-Mart, the industry index would have fallen 4 percent. Sales at stores open at least a year are considered a key indicator of a retailer's health.

Similarly, first-quarter profits fell 12 percent this year compared with last year industrywide. Excluding Wal-Mart's positive results, industry profits would have dropped 17 percent, though the gap between Wal-Mart and the rest of the industry has narrowed as merchants increase cost-cutting, Ken Perkins, president of RetailMetrics said.

Wal-Mart last month reported first-quarter earnings that were unchanged from the same period a year earlier. Revenue fell 0.6 percent but would have risen 4.5 percent without the impact of the strong dollar. To navigate through this tough environment, Wal-Mart has been scaling back its capital expenditures while focusing on remodeling existing locations and creating smaller outposts. The goal is to continue to increase cash flow to invest in its business while delivering returns to shareholders through dividends and buybacks.

Investors will also want to get an update on plans for new store openings and will want to hear more details about its international business, which now accounts for almost 25 percent of total sales.

At the same time, Wal-Mart will likely offer more about how it wants to play a larger role in addressing the financial challenges Americans face. Executives used last year's shareholders' meeting and other public forums to talk about its goals for sustainability and its health care plans for its store clinics and discounted prescription program.

Wal-Mart, which had been under relentless attack by union-backed groups on a variety of issues from labor infractions to lack of environmental awareness, has found those criticisms diminish as the company has worked hard to improve its image and make changes to its business.