When Wal-Mart Stores Inc reports second-quarter results on Thursday, it will provide a much-awaited glimpse into the state of consumer spending as measured by the billions of dollars that flow through its cash registers every quarter.

Wal-Mart is the biggest force in retailing, accounting for roughly 8 cents of every dollar of retail sales generated in the United States, excluding automobiles. But investors lost a vital source of insight into its sales when Wal-Mart said in May that it would stop reporting monthly sales.

When the giant retailer made the announcement, its comparable store sales -- or sales at U.S. stores open at least a year -- were outpacing those at competitors as customers sought out its low prices to stretch limited household budgets.

Wal-Mart watchers have since been trying to gauge whether those sales gains are continuing and how well the retailer will compare with figures from a year earlier, when it got a boost from shoppers spending government-issued stimulus checks in its stores.

The market remains pretty fixated on the comps, said Barclays Capital analyst Robert Drbul, The market wants to know where the comps are, and were they able to successfully navigate the last three months.

Meanwhile, the stock market is rallying, betting that an economic recovery is materializing. On Friday, the Standard & Poor's 500 hit a 10-month high.

David Abella, a portfolio manager at Rochdale Investment Management, which owns Wal-Mart stock, said if Wal-Mart were to report better-than-expected sales and profits on August 13, it could be seen as another sign pointing toward recovery.

If their results are disappointing, I think it would question the whole health of the consumer, he said.

WATCHING SALES, EXPENSES

The last sales update investors received from Wal-Mart was in May, when it said its April comparable-store sales rose 5 percent. Analysts were expecting a 2.9 percent rise.

Wal-Mart has forecast comparable-store sales to be flat to up 3 percent for the 13 weeks from May 2 through July 31. Analysts, on average, expect a gain of 1.1 percent, according to Thomson Reuters.

Drbul said investors are concerned that Wal-Mart might report a negative sales figure.

If the comps were to go negative, it would be viewed as pretty disappointing by the market, Drbul said.

Competitors might not be gaining market share like Wal-Mart, but they have started to wow investors with better-than-expected quarterly results or forecasts, driven by cost cuts and tight expense controls.

On Thursday, department store operator J.C. Penney Co Inc reported a double-digit drop in July comparable-store sales. But it said its second-quarter loss will be smaller than forecast as margins and operating expenses improved.

They (Wal-Mart) need to show some significant controls on expenses because all of their peers have, said Jason Pride, director of research at Haverford Investments, which owns Wal-Mart stock.

FLAT QUARTERLY PROFIT

For the second quarter, Wal-Mart forecast earnings per share of 83 cents to 88 cents from continuing operations. Analysts are expecting 86 cents -- flat with a year ago.

Abella said the whisper number is about 2 cents above the consensus forecast.

Analysts and investors said it could be hard for Wal-Mart to drive its shares, which trade around $49, much higher. While the Dow Jones Industrial average <.DJI> is up about 41 percent since March 9, Wal-Mart's shares are up only about 3 percent in the same period.

Investors who once viewed Wal-Mart's stock as a place to weather last year's financial crisis now see it as a laggard that could fail to keep up with competitors when the economy rebounds and consumers begin buying discretionary items.

Telsey Advisory Group analyst Joseph Feldman said his 12-month price target on the stock is $58 to $60.

It may be hard to get there, he said. I think the trade toward discretionary, it just leaves Wal-Mart in the dust.

Abella said that to get investors excited about the stock, Wal-Mart would need to issue a strong third-quarter comparable-store sales forecast.

What the market is really going to look out for with Wal-Mart is if they can start to use some of the market share gains they've made in the tough economy and be able to actually start to see some improved comps, he said. (Editing by Gerald E. McCormick)

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