Wal-Mart Stores Inc's international business is growing. Its Sam's Club warehouse unit shines. Its expanding online operation is being revamped. Still, investors largely care about just one thing: can the retail giant finally fix its U.S. stores?

The world's largest retailer has 9,700 stores, including 3,830 U.S. Wal-Mart locations. It is those shops -- Wal-Mart supercenters, Neighborhood Market grocery stores and the new, small Wal-Mart Express format -- that analysts and investors most eagerly want to hear about during Wal-Mart's 18th annual meeting for the investment community.

While the company has been bringing back more items offering everyday low prices and expanding services at the stores, sales have remained in a prolonged slump.

Wal-Mart shares have lost about 8 percent of their value since January. The shares jumped 1.8 percent on Friday, bringing them to $53.70, roughly in line with their value during last October's investor event.

The key catalyst to drive Wal-Mart's share price higher is for the U.S. division to deliver positive comps on a consistent basis. That's it, in a nutshell, said Channing Smith, co-manager of the Capital Advisors Growth Fund . That is what investors focus on and that is why the stock has gone nowhere.

Sales at the stores open at least a year, a key metric known as comps or same-store sales, have fallen for nine straight quarters, a decline Wal-Mart aims to stem this year.

Such sales fell 0.9 percent in the second quarter which ran from May through July, an improvement from earlier but still a drop. Same-store sales rose in July itself. Graphic on U.S. same-store sales: http://link.reuters.com/syq34s

THE DOLLAR STORE DILEMMA

Wal-Mart's discount chain accounts for nearly 11 percent of U.S. retail sales. Logic would suggest that shoppers looking to save would head to one of its stores as the company has been known for value on a variety of goods for nearly 50 years.

However, chains from dollar stores to Target Corp to Aldi have won over frugal shoppers by selling more food and other necessities. Shoppers who used to drive over to a big Wal-Mart now find such other chains more convenient, with what they see as better or comparable prices.

It almost seems as if Wal-Mart has lost its identity as a low-cost leader, said Smith, who said Wal-Mart shares account for about 3 percent of his fund's portfolio.

Wal-Mart has been bringing back more than 8,500 items from fishing rods to thread to woo shoppers who went elsewhere after de-cluttering its stores flopped. It now touts its own low prices and that it matches other stores' advertised prices.

It is also building some smaller stores, shipping online purchases to stores for free and even gathering up some items for shoppers to keep them from having to do the work.

But it faces stepped-up competition. Dollar General and Family Dollar each operate more U.S. locations than Wal-Mart, are growing same-store sales and are adding hundreds more stores.

The dollar store industry has grown wonderfully the last few years and has really taken market share from Wal-Mart, said John Champion, retail strategist and senior partner at Kurt Salmon. They're not ignorant of that. They're thinking about ways that they can address that.

Kurt Salmon's Champion said he would like to hear more about Wal-Mart's small format strategy, which he thinks it will take time to tinker with before a major expansion.

Neighborhood Market, the company's mid-sized concept, debuted in 1998 and today has roughly 185 locations.

Champion, for one, does not expect Wal-Mart's comments at its investor meeting to move the needle a whole lot, in terms of the share price.

One economic change that may work in Wal-Mart's favor is the recent decline in gas prices. Barclays analyst Robert Drbul estimated that a 10-cent per gallon drop in gas prices could add as much as $13.8 billion to the U.S. economy annually.

With gas prices down more than $0.50 from May, Wal-Mart is positioned as arguably the largest beneficiary to any incremental disposable income available to the U.S. consumer, particularly at the lower end, Drbul wrote on Friday.

He has a $62 price target on the shares.

Capital Advisors' Smith said he likes Wal-Mart's dividend and valuation and called it a great franchise.

It should be a $65 stock if the U.S. same-store sales accelerate, he said.

(Reporting by Jessica Wohl in Chicago, editing by Matthew Lewis)

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