The retailer posted a 0.3 per cent fall in like-for-like sales in the US in the quarter to July 26, despite evidence of an improving US economy, saying it was “disappointed” in what was its second consecutive decline.
“Our core customer is more in the low income area and . . . there’s not a lot of confidence right now in their incomes,” said Charles Holley, chief financial officer of the world’s biggest retailer by sales.
While the US labour and housing markets appear to be strengthening, Walmart said its customers continued to be squeezed by higher gas prices and an income tax rise that came into effect at the start of this year.
“When we do see good things in the economy sometimes they don’t immediately flow through to a pay cheque,” said Doug McMillon, head of Walmart’s international business, who was commenting on the US.
Walmart’s global revenues for the quarter rose 2.4 per cent to $116.2bn, but across international markets Mr McMillon said “consumer spending is under pressure”.
Walmart cut its sales forecast for global growth to between 2 per cent and 3 per cent for the year to the end of January 2014 from 5 per cent to 6 per cent.
It also reduced its forecast for profit growth, helping to push Walmart shares down 2.6 per cent to $74.41 on Thursday.
The company said it was doing more to control costs, but would also keep investing in ecommerce and compliance initiatives. In the past quarter it spent $48m on investigations into allegations of corruption in its Mexico business.
For the quarter to the end of July, Walmart’s earnings came in 1 cent short of Wall Street forecasts at $1.24. Net income was $4.1bn, up 1.3 per cent from a year ago.
Walmart also blamed the 2 per cent increase in personal income tax for a 1.4 per cent fall in like-for-like sales from February to April.
According to analysts at Stifel Nicolaus, the payroll tax increase has a disproportionate impact on Walmart’s low-income consumers, while the “wealth effect” from rising housing and stock prices affects them the least.
Walmart’s results added to a sense that the back-to-school shopping season so far has been underwhelming for retailers. The National Retail Federation has predicted an 8 per cent year-on-year fall in overall back-to-school spending.