America

Wal-Mart Blames Economy And Payroll Taxes For Slowed Earnings

The sign outside of a Wal-Mart store in Norwalk, Conn. i i
Don Emmert/AFP/Getty Images
The sign outside of a Wal-Mart store in Norwalk, Conn.
Don Emmert/AFP/Getty Images

Wal-Mart is blaming depressed demand amid a still-shaky economy and a rise in payroll taxes for disappointing earnings in the quarter ending July 31.

The world's largest retailer said Thursday that its net income rose to $4.07 billion, barely above the $4.02 billion it earned in the same quarter last year.

According to Reuters, sales at U.S. stores that have been open for at least one year fell 0.3 percent.

"The retail environment was challenging across all of our markets," Wal-Mart President and CEO Mike Duke said on a conference call.

Bloomberg reports:

"Wal-Mart's sales have been hampered this year by a 2 percentage point increase in Social Security taxes that has reduced spending among its shoppers, many of whom live paycheck to paycheck. Jerry Murray, a former vice president of finance and logistics at the retailer, said in a February e-mail obtained by Bloomberg News that the sales that month had been a 'total disaster.'

" 'The 2 percent payroll tax increase continues to impact our customer,' Bill Simon, Wal-Mart's U.S. president and CEO, said in today's statement. The company also expected sales to be helped by rising grocery prices, which didn't occur in a 'meaningful way,' he said."

The increase in Social Security taxes went into effect at the first of the year after Congress let a 2009 cut — aimed at economic stimulus — expire.

The company expects net sales to increase by 2 to 3 percent instead of the 5 to 6 percent it had earlier forecast.

Meanwhile, sales at the company's international stores also decreased 2.9 percent to $33 billion.

Wal-Mart blamed "significant ongoing headwinds" related to currency exchange rates. It now expects international annual sales to rise by only 3 percent instead of the 6 percent increase it had previously forecast.

Update At 4:00 p.m. ET. Markets Close

Stocks on Thursday ended at their lowest level since June 20 — results blamed partly on Wal-Mart's earnings report and partly on those of computer networking equipment maker Cisco. The Dow was off 1.47 percent, closing down 225.39 points at 15,112.27. The S&P 500 fell 1.43 percent, or 24.07 points, ending the day at 1,661.32.

Update At 12:00 noon ET. Noon Market Reaction

In morning trading, the news on the Arkansas-based retailer sent the company's shares down some 2 percent and help spur broader pessimism on Wall Street about the health of the economy. The Dow Jones Industrial Average tumbled more than 200 points in the first hours of trading.

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