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Can Wal-Mart Conquer Amazon, The World, And...Itself?

|Includes: AMZN, Wal-Mart Stores, Inc. (WMT)

Wal-Mart is down off of last week's high of $81/share as investors digest its Q3 earnings report and weak holiday spending. Net sales in Wal-Mart U.S. stores, accounting for 58.9% of sales overall, were up a healthy 2.4%, although comp sales lagged, declining 0.3%. International sales were up in constant currency but crushed by exchange rates. Overall, this led to total diluted EPS of $1.14/share, which was within guidance.

There seem to be two major headwinds facing Wal-Mart's U.S. growth in the medium term: e-commerce competition from Amazon and market saturation. To deal with the first, Wal-Mart brought in Neil Ashe from CBS Interactive. Ashe is aiming for around $10 Billion in online sales in 2013. Even that would be a relatively small percentage of their overall sales. As to market saturation, Wal-Mart is turning discount stores into supercenters, closing down 446 discount stores and opening 773 supercenters between 2007 and 2011, a move that increased same store sales from 67.3 to 68.3 million.

It seems, however, that Wal-Mart's primary growth pivot is to international, as evidenced by their choice of Doug McMillon, former head of Wal-Mart International, to replace Mike Duke as CEO. Given the strengthening dollar, Wal-Mart's purchasing power may create a competitive advantage with regards to expansion in foreign markets, tempering their relative lack of international expertise and weak international brand equity.

Overall, in my opinion, none of Wal-Mart's challenges seem beyond the capabilities of their exceptionally strong management team, though it's hard to imagine growth accelerating much in the near-term. Given their sound business model, I'd say Wal-Mart looks poised to navigate into the beginning of 2014 smoothly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.