Even as the economy shows signs of improving, with jobless claims dropping precipitously and the S & P rising more or less steadily this year, it seems that consumer spending still hasn’t fully recovered. Major department stores and brick-and-mortar retailers report second quarter earnings this month (retailers often end their fiscal year January 31 to not split the holiday season shopping boom), and the summer numbers so far don't look rosy.
Macy's, Inc. (M) reported earnings on Aug. 14 and disappointed. The biggest brick-and-mortar store and retailer bellwether, Wal-Mart Stores, Inc. (WAL) , reported on Aug. 15, and missed expectations as well, signaling 2013's economic recovery might not be as complete as previously thought.
The brick-and-mortar discounter accounts for 10 percent of all non-automotive consumer spending in the US, and is a bellwether for American consumer spending. The Betonville, Ark.-headquartered company specifically targets low-income shoppers, who have been hit the hardest by the economic downturn that dates back to 2007.
Wal-Mart specifically cited rising taxes as having negatively affected their bottom line. Social Security taxes increased 2 percent beginning on January 1, which digs into consumers discretionary spending.
Not mentioned by the company but also cogent to their declining sales is the lack of sales tax applied to internet retailers. E-commerce sites like Amazon, Inc. (AMZN) that engage largely in interstate transactions usually avoid being dogged with sales tax. Sales taxes are also regressive, and curb spending of low income shoppers the most.
Same-store sales, usually considered an excellent barometer of a retail chain’s health, fell 0.3 percent. This was incredibly disappointing, as analysts had expected same-store numbers to increase by one full percentage point.
In a conference call with investors, CEO Charles Holley expressed general disappointment in the numbers, but also expressed some optimism going forward. Children across the country are getting ready to go back to school, and the clothing and supplies shopping rush is usually a boon for discount retailers.
For their third second quarter 2013 earnings report, Wal-Mart reported a net profit of $4.07 billion, or $1.24 per share, versus the net profit of $4.02 billion, or $1.18 per share, from the same period a year ago. Revenue for the quarter was $116.2 billion, as compared to $113.5 billion from the previous year. Analysts were expecting a profit of $1.25 per share on revenues of $118.09 billion.
Wal-Mart’s stock dropped on the news, down 2.67 percent to hit $74.36 a share.
(Image courtesy of Wikimedia Commons)