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Wal-Mart outlook wary even as profit rises

February 22, 2013
By ANNE D’INNOCENZIO , THE ASSOCIATED PRESS

NEW YORK - As the fortunes of many Americans go, so goes Wal-Mart.

The world's largest retailer on Thursday reported an 8.6 percent rise in fourth quarter profit due to a smaller tax rate, but the company offered a tempered forecast as the lower- to lower-middle income shoppers that it caters to struggle with delayed tax refunds and higher payroll taxes.

Wal-Mart is among several companies from fast food chain Burger King to jewelry retailer Zale that have warned that shoppers are being hurt by smaller paychecks and delayed income refunds. But since Wal-Mart is an industry behemoth that accounts for nearly 10 percent of nonautomotive retail spending in the U.S., it is seen as a bellwether for how Americans are spending.

Article Photos

AP PHOTO
In this Nov. 22, 2012, photo, Eva Cevallos with her eleven-month daughter, Quinn, shop during the Thanksgiving Pre-Black Friday event at the Walmart Supercenter store in Rosemead, Calif. Wal-Mart Stores Inc. offered a weak business outlook Thursday, as new economic challenges for its low-income U.S. shoppers start to take a toll.

It's widely known that many Americans in the lower income brackets have continued to struggle during the economic recovery even as higher earners have benefited from rebounding housing and stock markets. And while Wal-Mart's results for the fourth quarter were promising, the retailer's expectations for the future signal that many Americans still are being pinched.

"Wal-Mart moms are the barometer of the U.S. household," said Brian Sozzi, chief equities analyst at NBG Productions who follows Wal-Mart. "Right now, they're afraid of higher taxes and inflation."

Wal-Mart, based in Bentonville, Ark., said while it had a strong start to the winter holiday shopping season in November, business has been volatile since December. The retailer said February, in particular, has been "slower than planned," largely due to the Internal Revenue Service's decision to delay accepting tax returns by eight days until Jan. 30 because the government didn't reach an agreement on the U.S. budget until late last year.

That resulted in Wal-Mart customers cashing about $1.7 billion in income tax refunds year to date, compared with $4 billion for the same period a year ago, said Bill Simon, president of the company's U.S. namesake division. Simon said last year, shoppers used their refund money to buy TVs ahead of the Super Bowl, but this year, the retailer isn't sure how customers will use the additional money.

Wal-Mart said it's also unclear how the payroll tax, implemented last month when the U.S. government allowed a temporary 2 percentage point cut in Social Security taxes to expire, will affect customers' spending habits. Indeed, nearly all working Americans are taking home less pay, and JP Morgan estimates that the payroll tax increase will equate to $70 a month less in take home pay for Wal-Mart shoppers, assuming an average annual income of $42,500.

 
 

 

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