EarningsCenter

What Walmart's Outlook Says About the Whole U.S. Economy

Walmart earnings economic outlookBy ANNE D'INNOCENZIO and CHRISTOPHER S. RUGABER

NEW YORK -- As the fortunes of many Americans go, so goes Walmart, so goes the economy.

Even as the world's largest retailer on Thursday reported an 8.6 percent rise in fourth quarter profit during the busy holiday shopping season, it offered a weaker forecast for the coming months. The problem? The poor and middle-class Americans Walmart (WMT) caters to -- and who are big drivers of spending in the U.S. -- are struggling with rising gas prices, delayed income tax refunds and higher payroll taxes.

Melanie M. Burkhardt, a mother of two teenagers who shops at Walmart, is one of those people. Burkhardt, a Waycross, Ga., resident, said she's been hit with a double whammy: the payroll tax hike, which has cut her household monthly income by $260, and higher gas prices.

"We had to do a flip on our budget," said Burkhardt, a legal assistant who plans to cut back on her trips to Walmart. "This is money we used for things like going to a movie or splurging at Olive Garden. Not anymore."

It's widely known that Americans in the lower income brackets continue to struggle even as higher earners benefit from improved housing and stock markets, but Walmart's results signal that matters may be getting worse for the nation's poor and middle-class. Walmart is the latest in a string of big-name companies from Burger King (BKW) to Zale (ZLC) to say those Americans are being squeezed by new challenges. But since Walmart accounts for nearly 10 percent of nonautomotive retail spending in the U.S., it is a bellwether for the economy.

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

Indeed, while wealthier households have seen their stock portfolios grow, poor and middle-class Americans have struggled to regain their financial footing since the recession ended more than 3½ years ago.

Stocks have roughly doubled since June 2009. Dividends and capital gains from stocks, which disproportionately benefit higher-income Americans, are taxed at lower rates compared with ordinary income

And while incomes for most Americans have failed to keep pace with inflation since the recession, that's been particularly true for middle and lower-income earners.

Median household income, adjusted for inflation, fell 1.5 percent to $50,054 in 2011 compared with 2010, the latest periods for which figures are available, according to the Census Bureau. That was down 8.1 percent from 2007, just before the recession began. (The median is the point halfway between the highest and lowest levels.)

But lower and middle-income households fared worse: The share of overall income earned by the bottom 80 percent of households shrank in 2011, while the income for the top 20 percent grew. And in 2012, inflation-adjusted hourly pay barely rose, inching up 0.3 percent.

Another hurdle for lower- and middle-income Americans has been the jump in gas prices since mid-January. The average price for a gallon of gas rose 47 cents in the past month to $3.78 on Thursday, according to AAA.

Tax changes also have hit the nation's lowest earners especially hard. On Jan. 1, Social Security payroll taxes rose 2 percentage points after a temporary tax cut expired. That sliced about $1,000 from the take-home pay of a household earning $50,000. Since the Social Security tax is levied against income only up to $114,000, it disproportionately affects middle- and lower-income households.

An even larger challenge for many lower-income Americans has been the government's delay in processing income taxes and paying refunds. That's because income tax rates weren't set until a last-minute deal between the White House and Congress on Jan. 1. So the IRS pushed back the start of tax-filing season to Jan. 30, two weeks later than usual.

As a result, by Feb. 14, the government had paid only $55 billion in refunds, down from $77 billion at the same time last year, according to an estimate by UBS. That drop of $22 billion is more than twice the impact of the higher payroll tax. Refunds have accelerated recently and will eventually be paid out, but the impact still can be felt by many taxpayers: About 78 percent of taxpayers receive refunds, and the figure rises to 82 percent for those reporting income below $50,000.

Walmart, based in Bentonville, Ark., said while its business has been volatile since December, the month of February, in particular, has been "slower than planned" largely due to the tax refund delay. The company said that resulted in Walmart customers cashing about $1.7 billion in income tax refunds year to date, compared with $3 billion for the same period a year ago.

Bill Simon, president of Walmart's U.S. namesake division, said shoppers used their refund money last year to buy TVs ahead of the Super Bowl. This year, the retailer said it isn't sure how customers will use the additional money when they get it, but some analysts say the most likely scenario is that they'll save it.

Walmart said it's also unclear how the payroll tax will affect customers' spending habits, although Simon said shoppers are "talking about it." JP Morgan estimates that the payroll tax increase will equate to $70 a month less in take home pay for Walmart shoppers, assuming an average annual income of $42,500. As a result, Walmart is offering smaller packaging and less expensive products.

Walmart earned $5.6 billion, or $1.67 per share, during the fourth quarter that ended Jan. 31, up from $5.16 billion, or $1.50 per share, a year earlier. Results were helped by a lower tax rate, which was 27.7 percent, compared with the rate of 30.9 percent a year ago. Net sales rose 3.9 percent to $127.1 billion.

Earnings topped Wall Street estimates of $1.57 per share, but sales fell short of the $127.8 billion analysts were expecting.

During the current quarter, Walmart says it expects earnings to range from $1.11 to $1.16 per share, below the $1.18 per share analysts polled by FactSet are expecting. For its namesake U.S. business, Walmart expects first-quarter revenue at stores open at least a year, a measure of a retailer's health, to be unchanged from a year ago. The pace of revenue growth has slowed in recent quarters, and some analysts believe Walmart's forecast could be too optimistic.

For the year, Walmart expects earnings of between $5.20 and $5.40 per share, while analysts expect $5.38 per share.

Despite the subdued forecast, investors were bracing for a weaker report after Bloomberg published a story Friday that leaked an email from an executive characterizing the first two weeks of February as "a total disaster." Shares fell that day, but investors appeared to be relieved on Thursday that Walmart's outlook wasn't worse. Shares rose about 1 percent, or $1.05 per share, on Thursday to close at $70.26.

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D'Innocenzio reported from New York. Rugaber reported from Washington, D.C.




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bhawkes328

ITS A DEPRESSION, ALL OF YOU CAN PLAY ALL THE PISSING CONTEST YOU LIKE.... ITS UGLY AND GETTING WORST BY THE DAY

February 25 2013 at 4:20 PM Report abuse rate up rate down Reply
Greg&Patty

Omg-you relentlessly keep posting your baloney in caps like we all should take you serious...grow up.

February 25 2013 at 11:56 AM Report abuse rate up rate down Reply
gnewshan

The 47% deserve everything -or lack thereof-that's coming to them.They surely voted thew right man in.With their logic and lack of wisdom that's why they are the 47%'s.

February 25 2013 at 8:16 AM Report abuse rate up rate down Reply
onebrainless

I've read this article, in it the article says that the lower and middle classes are the drivers of spending in the US. This seems to be at odds with the administration, which has been spending heavily these last several years. Point of fact, the administration has not only spent all the tax revenue gathered by the IRS, the administration has spent over a trillion dollars a year more than the IRS has generated in tax reciepts. This is not driving the economy? Why isn't it? Shouldn't it be if that were the problem? Also, in the article, lower and middle classes struggling with 3 particular problems one of which is higher payroll taxes. This simply can not be. This administration, taking it at it word, only wants the higher income individuals and corporations to pay more in tax to the IRS. Why should the lower and middle income be struggling with payroll taxes? In what way are these defined people struggling? Since 01/21/09, the people have been lving under a redistrutive administration, that was to cause a fundamental change in our nation, cluture, and civiliztion. Are there any metrics to show such a transition, is/has been taking place? When a political candidate has the balls to say to a young man that wants to open his own plumbing business, that he, the candidate, wants to spread the wealth around then didn't/hasn't/won't. This candidate, the office holder has played the US, and us! His definders and supporters should be able to point to the metric of undeniable facts that show us and the US, that spreading the wealth around with redistrubiyive policies actually work. The lowering of income to the lower and middle classes should not be happening as well as the lower and middle income people should not have to endure increasing taxes under a redistributive regime. This is what I read in the article as Walmart attempts to help its customer base ajust to redistrutive politics. I can change my views if I see the facts and metrics change, but demogagory will not change my opinon, neither will name calling or labeling.

February 23 2013 at 3:45 PM Report abuse rate up rate down Reply
Love Shack

Chinamart sucks

February 23 2013 at 12:01 AM Report abuse +3 rate up rate down Reply
Love Shack

Chinamart sucks

February 23 2013 at 12:01 AM Report abuse +2 rate up rate down Reply
omgnojobs

JUST KEEP FIGHTING OBAMY N HIS GANG OF DUMMYCRAP GYPSIES BACK UNTILL HE IS REMOVED FROM OUR WHITE HOUSE IN HANDCUFFS FOR OBSTRUCTING OUR AMERICAN RECOVERY FOR THE LAST 4 PLUS YEARS . !

February 22 2013 at 11:24 PM Report abuse rate up rate down Reply
2 replies to omgnojobs's comment
Greg&Patty

Oh, Btw omg, tell grandma & grandpa to send the Social Security money back to uncle sam to help with the recovery-Make people like the Kochs brothers & Pete Pettersn very happy.

February 25 2013 at 11:53 AM Report abuse rate up rate down Reply
Greg&Patty

Omg-you keep posting your baloney in caps like a child.

February 25 2013 at 11:55 AM Report abuse rate up rate down Reply
lvh44leo

Wal Marts over expansion and their wanting to control all of retail is now their downfall. With over 10,000 stores world wide.Americans have had enough of Wal Mart and 2013 should prove it.Wal Mart is a success story going sour.

February 22 2013 at 10:53 PM Report abuse +2 rate up rate down Reply
Peter

The article states that Burkhardt's income was cut by $260 per month as a result of the FICA payroll tax increase. The payroll tax increased by 2%. This would mean that Burkhardt's family earns $13,000 per month, or $156,000 per year. Something's not right with this picture!

February 22 2013 at 10:21 PM Report abuse rate up rate down Reply
Mark

Thanks Mr. President

February 22 2013 at 10:07 PM Report abuse -2 rate up rate down Reply
1 reply to Mark's comment
omgnojobs

YEA THANKS OBAMY FOR DRIVING OUR WHOLE COUNTRY INTO THE CRAPPER >>DID I MENTION THAT OBAMYS RECORD UNEMPLOYMENT FOR THE LAST 4 PLUS YEARS IS ON THE RISE YET ONCE AGAIN >>SHEESH ...WHENS IT NEVER GOIN TO END. ! OBAMY==FAILURE

February 22 2013 at 10:45 PM Report abuse +1 rate up rate down Reply