Wal-Mart Stores Inc (WMT) Earnings: Payroll Tax Hikes Beginning To Hit Middle Income Consumers? -- PROMO

Category: Daily Promo / Aug 15, 2013 6:47PM EDT

Wal-Mart Stores Inc. (WMT), the world’s biggest retailer, reported second quarter profit rose to $4.07 billion, or $1.24 a share, compared with $4.02 billion, or $1.18 a share, in the year-ago period. Excluding one-time items, the company earned $1.25 a share, in line with analysts’ estimates. Revenue came in at $116.9 billion, compared with expectations of $118.09 billion.

The retail giant also issued weaker-than-expected U.S. same-store sales for the quarter, and cut its profit outlook and earning guidance for the year.

Jonathan Corpina, senior managing partner with brokerage firm Meridian Equity Partners Inc., spoke with the International Business Times about this week’s retail earnings from Wal-Mart Stores Inc (WMT)  and Macy’s, Inc. (NYSE: M).

Economists look to consumer spending as an important measure for the U.S. economy, as it accounts for nearly two-thirds of gross domestic product (GDP).

“It’s very concerning,” said Corpina about retail earnings from Wal-Mart and Macy’s. “Going through earnings season, we get plenty of reports from plenty different companies and sectors, but it’s clearly this sector that gives us a good reflection of what’s happening in our economy.”

Economists have been concerned that the expiration of the payroll tax cuts in January, along with government sequestration cuts in March may have hit consumer’s pocketbooks.

“There’s a couple of things that have affected this. We’ve got an increase in the payroll tax, and we’ve talked about when is that going to really show effects. I think we’re really starting to see that effects now,” added Corpina.

Wal-Mart now expects net sales to rise 2 percent to 3 percent for the full year, down from an earlier forecast of a 5 percent to 6 percent increase. The retailer also cut its profit outlook and now expects earnings between $5.10 to $5.30 per share, down from $5.20 to $5.40 previously.

“So all of this correlating together is showing that there’s less money in peoples pay checks,” said Corpina. “They’ve got expenses that keep going higher, and there’s less money for them to spend on things like clothes and leisure time. So were seeing this in these earnings reports, and I think it’s quite wise that we heard from Wal-Mart today.”

On Wednesday, Macy’s surprised investors after missing expectations for the second quarter. The department store blamed an unexpected fall in sales on the consumer’s reluctance to spend on non-essentials.

“There’s a lot of uncertainty what’s happening here in our economy, a lot of uncertainty on what’s happening in Europe and China,” said Corpina. “Sometimes we get a little bit of a watered down forecast. The message today is the correct forecast that should be displayed by the companies.”

On Thursday, shares of Wal-Mart Stores Inc. (WMT) fell 2.79 percent to $74.27 in afternoon trade.