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Wal-Mart lowers outlook as consumers hold back

Largest retailer in U.S. says shoppers have ‘a general reluctance’ to spend

By Stephanie Clifford
New York Times

Wal-Mart Stores, the nation’s largest retailer, missed analyst expectations in the second quarter and lowered its full-year profit and sales guidance Thursday, saying consumers were still weighed down.

Coming a day after Macy’s missed expectations – its first miss in 25 quarters – and lowered annual guidance, and the same day that Kohl’s did the same, the retailers’ results suggest that consumers in both the low and middle sectors of the market are not yet being buoyed by an improving economic picture.

Wal-Mart’s profit increased by 1.3 percent to $4.07 billion for the quarter, while sales rose 2.4 percent to $116.2 billion.

The crucial measure of same-store sales, though, dropped 0.3 percent for stores in the United States, versus analyst expectations of a 0.7 percent increase.

Wal-Mart shares closed Thursday at $74.41, down $1.99.

Wal-Mart attributed the sluggish results in the United States to the payroll-tax increases, a lack of expected inflation in food, and “a general reluctance of customers to spend on discretionary items right now,” Charles M. Holley Jr., Wal-Mart’s chief financial officer, said in a call with reporters.

Executives said some categories performed well, including home, apparel and produce, which Wal-Mart has been trying to improve after complaints about the quality and freshness of its produce aisles.

Categories that are more discretionary, like entertainment, seasonal goods and hard goods like sports equipment and crafts, posted negative comparable sales.

“The consumer doesn’t quite have the discretionary income, or they’re hesitant to spend what they do have,” Holley said.

The company’s international unit, which had until recently been growing at a fast clip, also turned in tepid quarterly results, with sales growing 2.9 percent to $33 billion.

“We’ve seen customers both in mature and emerging markets curb their spending,” said C. Douglas McMillon, chief executive of Wal-Mart International. “We believe that environment is going to remain through the end of the year.”

The company decreased its full-year guidance for net sales to 2 to 3 percent growth, from 5 to 6 percent growth. Also, “somewhat uncharacteristically for Wal-Mart,” according to a Sanford Bernstein analyst, Colin McGranahan, it lowered its annual earnings-per-share forecast, to $5.10 to $5.30, from a previously issued $5.20 to $5.40.

“The expectations through the end of the year are really through the lens of the cautious consumer,” Holley said.

The company continued to spend on an investigation and compliance overhaul spurred by an April 2012 New York Times article about bribery in its Wal-Mart de Mexico unit. In the second quarter, Wal-Mart spent a higher-than-expected $82 million on those expenses. Core corporate expenses for the quarter increased 12.2 percent; without the compliance-related spending, Wal-Mart said, corporate expenses would have decreased 2.2 percent.

The retail chain Kohl’s said it expected third-quarter earnings in the range of 83 cents to 92 cents a share. Analysts on average were expecting a profit of 94 cents a share. Kohl’s said net income fell 4 percent to $231 million in the quarter ended Aug. 3, from $240 million a year earlier.

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