Will Dollar stores be the cause of Wal-Mart (NYSE:WMT)’s downturn?

On Thursday morning, Wal-Mart (NYSE:WMT) declared that the profit for the full year will be less than the previous forecast. Analysts from Wall Street stated that chains like dollar store which include Dollar Tree, Family Dollar and Dollar General are the reason for Wal-Mart (NYSE:WMT)’s struggles with sales. They also brought up the fact that Wal-Mart (NYSE:WMT) is bent on increasing costs that include e-commerce investments and health care.

The company has reported that in the second quarter of 2015, it expects revenue of $120.1 billion which would be an increase of 2.8% compared to the same quarter in the previous year. This figure beats the consensus by the analysts by $1 billion. The quarter’s net income was up by 0.6% valuing at $4.1 billion, which resulted in $1.21 EPS.

Brian Yarbrough, consumer analyst of Edward Jones, said that the quarter’s comparable sales for the store were flat, fuel excluded. He said it was not something exciting. It should be kept in mind that grocery items are 55% of Wal-Mart (NYSE:WMT)’s service which makes this major competition. Yarbrough further said that Wal-Mart (NYSE:WMT)’s competitors are more clever now in attracting their customers as a result of which Wal-Mart (NYSE:WMT) has definitely suffered.

He stated that in his opinion, consumers with lower incomes are under pressure and visit dollar stores to stock up. He mentioned that this is why Wal-Mart (NYSE:WMT) is facing hardships; he believes it is not an easy task for the consumer to stop by at Wal-Mart (NYSE:WMT) just to buy a single item; as opposed to this the smaller scale store such as Dollar Trees and Family Dollars offer more consumer comfort.

The CEO and president of Wal-Mart (NYSE:WMT), Doug McMillan mentioned in his last statement that the company has solid EPS results however, Sam’s Club and Wal-Mart (NYSE:WMT) US reported flat comp sales which seemed like a letdown for the company.

He also stated that Wal-Mart (NYSE:WMT)’s performance in the international segment, e-commerce and neighborhood market proved quite the contrary. The company’s operating income increased by 8% to $1.5 billion and there was a 24% increase in sales in e-commerce.

The extension of Wal-Mart (NYSE:WMT), its Neighborhood Markets that were launched in order to compete against local markets that operate on a smaller scale, experienced a 5.6% in comparable sales for the store and a 4.1% traffic increase. In the current quarter, Wal-Mart (NYSE:WMT) opened 22 Neighborhood stores and stated to open around 180-200 more in the current year. Yarbrough mentioned that investors should beware of a turn around as anything may happen. He continued to say that in the long term, the company has value but he wasn’t as sure about the near future as consumers are struggling as well.

Wal-Mart (NYSE:WMT) reduced its full year profit for 2015 ranging from $5.10/share – $5.45/share to $4.90/share -$5.15/share due to costs incurred in investments for the company’s e-commerce business. It stated that this includes third quarter EPS of $1.10-$1.20.

After the earnings result was released, the shares of the company remained unchanged to an extent. However, at first they climbed up to 0.3% but afterwards dipped down by 0.6%.