Updated from 11 a.m. ET with response from Walmart spokesman 

Walmart (WMT) managed to meet expectations with its second-quarter earnings and its revenue slightly exceeded consensus. But the world's largest retailer still managed to disappoint investors by cutting its full-year earnings forecast and failing to produce same-store sales growth for the seventh-consecutive quarter.

"It's sad," longtime Walmart watcher Howard Davidowitz says of the company's results. "This is a company that really has management problems."

Indeed, Walmart's results and guidance show the challenges executives face in trying to find alternative areas of growth, namely online and with smaller stores, to offset the slowdown in their core business.

Related: Howard Davidowitz on J.C. Penney: “This company is on track to go broke”

The company highlighted the growth of online sales, which rose 24% globally and double-digits in the U.S., but also cited ongoing investment in its e-commerce platform as one factor in lowering its guidance.

“Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur," CEO Doug McMillion said in the company's press release. "Our customers expect a seamless experience, and we’re working to deliver that for them around the world.”

Walmart spent $500 million in 2013 to improve its website and announced plans to invest another $150 million this year, The WSJ reports. But online sales only represent around 2% of Walmart's revenue, which hit $119.3 billion in the second quarter.

"They've spent a fortune buying all kinds of companies in Silicon Valley to take on Amazon -- it's not happening," Davidowitz says. "They have to do it [but] does Walmart have the culture..the capability, the management and the creativity [to compete with Amazon]? I doubt it. I think most of the money will be wasted. It's a very tricky area for them.”

Similarly, Walmart highlighted a 5.6% sales increase in their smaller Neighborhood Market segment vs. flat comps for both overall U.S. stores and Sam's Club. Neighborhood Markets typically have about 42,000 square feet vs. 182,000 square feet for Wal-Mart Supercenters and around 100,000 for Sam's Club outlets.

"It's a little pimple on the back of an elephant," Davidowitz says of the Neighborhood Market concept. "They've been working on small stores for 20 years and they're at ground level, zero. It's pitiful."

If Walmart was serious about expanding the smaller store format, Davidowitz says they should have acquired Family Dollar, which recently merged with Dollar Tree. "They have a major problem with their business: Supercenters are less relevant than they used to be," he explains. "So why didn't they buy Family Dollar? I don't get it. That's the play. That's where they should've invested money, then they'll have a position in small stores."

Dollar General, which has about 11,000 stores in 40 states, is another option but Walmart would likely have to pay a higher premium to buy it in the wake of the Family Dollar-Dollar Tree merger.

[Update:  "Our focus is on Neighborhood Market and growing that," says Randy Hargrove, a spokesman for Walmart. "We look at acquisitions it but it's hard to find one that would fit what we need."

Walmart has announced plans to double its small format stores -- including Walmart Express along with Neighborhood Market -- to as many as 300 this year. "You're going to see fuel, fresh, frozen and pharmacy," Hargrove says. "Those are what's being featured and you wouldn't get that in a dollar store."]

Walmart needs to improve "in all key categories," Davidowitz says, citing intense competiion from Costco and Kroger's as primary threats. "Food and consumables are half of [Walmart's] sales," he notes. "This is something they've got to work on because Kroger's is gaining share on them. They're the largest traditonal grocer and doing a much better job."

One area Davidowitz does see an opportunity for Walmart is in health-care clinics, calling it a "rational, sane approach to healthcare." Walmart has opened 6 primary care facilities in South Carolina and Texas, with plans to open another 6 by year end, The NYT reports.

Related: Why go to the doctor when you can go to Walmart?

Aaron Task is Editor-in-Chief of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at [email protected].

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