Goldman's Rating Downgrade a New Blow to Wal-Mart

Wal-Mart Stores Inc. (WMT), the world's biggest retailer, suffered another blow to its star status on Wednesday when a leading investment bank downgraded the company's stock.

Goldman Sachs (search) retail analyst George Strachan cut his rating on Wal-Mart to "in-line" from "outperform," sending the shares down slightly in early trading.

The move came six days after Wal-Mart posted weak November sales, admitting it made a mistake by not discounting goods enough as the holiday shopping season began, and gave its lowest monthly sales forecast in 19 months for December.

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Wal-Mart has about 3,660 stores in the United States and plans to open its first store in New York City in 2008, according to media reports this week.

The company also has more than 1,500 stores internationally and boasts annual sales of $256 billion — about the same size as the gross domestic product of Austria.

But the retail giant has steadily reported slower sales growth in the United States in recent years and has struggled to defend its reputation, plagued by dozens of lawsuits alleging violations of wage-and-hour laws and discrimination.

Two years ago, it regularly reported sales rising about 6 percent a month at its U.S. stores open at least a year — a key retail gauge known as same-store sales (search) — but this has slipped to around 2 percent in the second half of 2004.

Last week, Wal-Mart reported U.S. same-store sales rose just 0.7 percent in November and forecast U.S. same-store sales would increase just 1 percent to 3 percent in December.

Wal-Mart shares were down 27 cents at $52.23 on the New York Stock Exchange (search).

Richard Hastings, retail analyst at Bernard Sands LLC, said the Wal-Mart phenomenon was changing from a growth story to one of a mature value stock.

The Bentonville, Ark.-based retailer is facing more competition from other discount stores like Target Corp. (TGT), and its increasing move into lower-margin grocery sales is diluting its overall sales growth rate.

"It is a changing business. It is now a big mature business," said Hastings.

Wal-Mart's share price had fallen 1 percent this year through Tuesday, underperforming the broad S&P 500 index by 6.5 percent and the S&P Multiline Retail Industry Index (search) by 15.8 percent.

Wal-Mart has announced plans to increase its store space by about 8 percent next year.

As well as U.S. expansion, Wal-Mart is also looking at expanding in Japan, where it is a major stakeholder in No. 4 supermarket chain Seiyu Ltd (search).

It is also among investors seeking to join the turnaround effort for Daiei Inc. (search) , which was once Japan's biggest retailer.

"It is one of the companies we have an interest in, but where things stand there is no change in our public comments," said a Wal-Mart spokeswoman, declining to give more details.