This has been a better year for Walmart's (NYSE:WMT) stock than many of its customers, as the stock has more than doubled the return of the S&P 500. While Walmart did have a solid back-to-school season and is as leveraged as anybody to improving consumer conditions (and confidence), the sluggish comp numbers suggest that the company is not completely out of the woods.

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Decent, but Not Great, Third Quarter Numbers
Walmart's earnings always get a lot of attention, given its enormous position within the United States retail sector. To that end, Walmart's numbers may be a good reminder that, while the worst may be over, that's not the same thing as saying that the good times are back.

Revenue rose 3.4% as reported, or 4.9% on a constant currency basis. Core Walmart sales in the U.S. rose 3.6% on a 1.5% comp improvement, while Sam's Club saw a 4.7% growth on 2.7% comp growth. I would suspect that investors won't be thrilled with the flat traffic number for Walmart, nor that Sam's Club comps were actually below the 3 to 5% guidance range. International growth of 2.4% (or 7.6% in constant currency) was OK.

Margins were likewise OK, but not exciting. Gross margin worsened by about 13 basis points, which was better than most sell-side analysts had forecasted. Operating income rose 4% (4.5% in constant currency) and the company saw some modest operating leverage. Segment operating income rose about 5%, with low-teens growth at Sam's Club.

Were Expectations too High?
Walmart certainly didn't beat the average estimate by much, and the magnitude of the company's operating improvements is likely somewhat disappointing to the bulls. That said, estimates had been nudging up into the quarterly report and the stock's strength over the past year makes me wonder if analysts and investors were getting ahead of themselves.

Yes, retail on the whole has been doing better than expected lately - whether it's smaller clothing retailers like American Eagle (NYSE:AEO), food retailers like Kroger (NYSE:KR) and Whole Foods (Nasdaq:WFM), or other large discount/warehouse retailers like Target (NYSE:TGT) and Costco (Nasdaq:COST). But there have also been laggards of note as well, including Kohl's (NYSE:KSS), Abercrombie & Fitch (NYSE:ANF), J.C. Penney (NYSE:JCP) and Sears (Nasdaq:SHLD). All in all, weak wage growth and consumer uncertainty is combining to make for a difficult environment for retailers - if your prices or assortments aren't right, you're in trouble.

The War for Christmas
It will be interesting to see how this Christmas shopping season shapes up. As I said, consumer confidence isn't great and I do wonder if public wrangling in Washington, D.C. over tax and spending changes is going to dent that further.

On the other hand, companies are already getting their promotional efforts underway and it looks like shoppers are going to be more bombarded than ever before - in terms of advertising, price competition, service offerings (like layaway) and expanded store hours. Maybe shoppers will just throw up their hands in disgust and go to Amazon (Nasdaq:AMZN) instead.

In most respects, Walmart should be in good shape. The company had good momentum coming out of the back-to-school season, and has ramped up its price leadership and expanded layaway to try to grab business from Target, Amazon, et al. At the same time, entanglements like the expanded bribery investigations really aren't going to move the needle with shoppers (you already either hate Walmart or you don't, and bribery charges in Brazil aren't going to matter if Walmart has the TV you want at the best price in town).

The Bottom Line
When it comes to retail, I prefer real growth stories or deep-value turnarounds, and Walmart is neither. I also worry about Walmart's growth prospects if job/wage growth doesn't improve, as I just don't know what they can do to goose traffic much from here. While Walmart's quality may argue for some premium in its valuation, I'm not interested in paying eight times EBITDA for a company with Walmart's growth prospects.

At the time of writing, Stephen D. Simpson did not own any shares in any company mentioned in this article.