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From the FT's Lex blog

Those driven to big dividend-paying companies by economic uncertainty and low yields do not enjoy even the smallest of surprises. Wal-Mart's shareholders got one on Tuesday, when the company reported fourth-quarter earnings slightly below expectations, while management made cautious noises about the American consumer. Almost 4 per cent was knocked off the shares.

With a company as big and intertwined with the global economy as Wal-Mart, it makes sense to focus on longer-term trends rather than quarterly blips and bumps. But the bigger picture is not uniformly reassuring, either. Despite its size, Wal-Mart has consistently managed respectable growth. In recent years, however, it has not translated more scale into improved profitability.

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New store openings in the U.S. and abroad have driven 5 per cent average sales growth over five years. Yet gross margins have barely improved over that period. Operating margins have expanded at the U.S. supercentres, but not at the discount club or international segments. Return on assets and investment have been flat for three years. Total free cash flow is not rising. Earnings per share have risen at a healthy 9 per cent clip over the past half decade, but the better part of that has been driven by share buy-backs.

None of this should come as a shock. Wal-Mart runs more than one billion square feet of retail space and in a few years it will reach half a trillion dollars in annual sales. If economies of scale can reach the point of exhaustion, this is the company where that will happen.

Wal-Mart remains very shareholder friendly, returning heaps of cash through dividends and buy-backs. And while it has yet to prove that it can wrest further efficiencies from its stores while continuing to grow, management deserves credit for maintaining the status quo at an empire of unprecedented size.

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