Bill Simon could not have picked a better time to take over as chief executive of Wal-Mart Stores Inc's key U.S. discount store unit.

While many analysts expect Wal-Mart's largest business to show its fifth consecutive quarterly drop in same-store sales when the company reports second-quarter earnings on Tuesday, the business is also nearing a sales turnaround.

Some food price inflation, the reversal of a poorly executed decision to pull hundreds of products from store shelves, the end of short-term deep discounts on thousands of items and easy comparisons to a year earlier should all steer same-store sales into positive territory as early as the third quarter, analysts said.

They should actually start to show some decent (same-store sales) growth over the next few quarters, J.P. Morgan analyst Charles Grom said.

While U.S. same-store sales have been down for the past year, Wal-Mart's earnings have been boosted by its own cost cuts and growing international sales.

Analysts expect that trend to continue, and on average forecast second-quarter earnings of 97 cents a share on sales of $105.40 billion, according to Thomson Reuters I/B/E/S. Those figures are up from 88 cents and $100.91 billion a year earlier.

In May, Wal-Mart forecast earnings of 93 cents to 98 cents a share in the quarter, with U.S. same-store sales up 1 percent to down 2 percent in the quarter.

Rival Target Corp , which has been helped by some increased consumer spending on clothing and other discretionary items, posted a 1.7 percent increase in same-store sales for the quarter on total sales of $15.13 billion.

Analysts expect Target, which reports Wednesday, to post earnings of 92 cents a share, up from 79 cents a year earlier.

The company's moderate sales trends should be boosted by expense control and profitability in the company's credit card unit, Bernstein research analyst Colin McGranahan said in a research note.

Target has bested Wal-Mart in U.S. sales growth in recent months as some shoppers shifted away from buying only food and basic apparel into more fashionable clothing and furniture.

Target shares are up 5.4 percent this year, compared with a 5.2 percent decline for Wal-Mart.


Simon was named to head Wal-Mart's U.S. discount store business at the end of June, replacing Eduardo-Castro Wright, who stayed on as vice chairman of the company.

Analysts are eager to see how Simon, who had been chief operating officer of the business, will try to boost sales.

We're going to try to get a sense of what his approach is going to be toward the business, Grom said of Simon. What is he going to do to stimulate traffic, driving sales?

Even before Simon took over, Wal-Mart had been returning some items to store shelves that were pulled when the company eliminated hundreds of SKUs or stock-keeping units -- industry slang for different types and sizes of products and packages.

The company found that in some cases the items purged for having slow sales were still basics that brought consumers into stores, where they then bought other goods.

What they are going to keep is the desire to pare back item assortment. They just are going to get a little bit more thoughtful about how they do that, said Ken Harris, chief executive of consultancy Kantar Retail Americas, which works with Wal-Mart and other retailers and manufacturers.

Investors will also be looking for details on the company's pricing strategy. Analysts have said that Wal-Mart may be pulling back from the slew of temporary price rollbacks it adopted in the spring to try to drive traffic, moving back to a strategy of everyday low prices.

J.P. Morgan found in July that the price of a basket of 31 items it tracks at Wal-Mart rose 5.8 percent from June.

While that could be a sign that consumers will face some modest inflation going forward, it would also boost sales at Wal-Mart, helping the retailer get even more of a return on the cost-cutting moves it has made, analysts said.

Another question will be the retailer's merchandise assortment. For example, the company's apparel business has been a laggard and Wal-Mart has said it will focus more on offering basic items like socks, underwear and jeans.

But Wal-Mart must also find a new U.S. chief merchandising officer. John Fleming decided to leave that post days after Simon was named to run the U.S. division and the decision on filling the job will give insight into how the company will try to lure consumers going forward, analysts said.

That's a really big seat and has some big implications, Edward Jones analyst Matt Arnold said.

(Reporting by Brad Dorfman; Editing by Michele Gershberg and Richard Chang)