Wal-Mart’s sales stagnation reignites concerns about the U.S. economy | The Kansas City Star

Wal-Mart Stores Inc.’s latest struggles to revive U.S. sales, following a disappointing Commerce Department report earlier this week, add to evidence that the economy isn’t recovering as quickly as expected.

The company posted stagnant same-store sales Thursday in its second-quarter earnings report, marking the sixth straight period of no growth. The world’s largest retailer also cut its earnings forecast for the year, citing higher spending on health care and e-commerce.

The sluggish results followed disappointing earnings from Target and Macy’s this month, signaling that a broad swath of retailers are struggling. The Commerce Department’s report on July retail sales was the weakest in six months, hurt by tepid wage growth.

Some of Wal-Mart’s woes reflect a shift away from big-box retailers. But with middle-class and lower-class wages stagnant for decades and nearly all of the post-recession gains going to the rich, the leveling-off of consumer spending is no surprise.

“It’s difficult out there,” said Brian Yarbrough, an analyst at Edward Jones in St. Louis. “I just don’t know where consumers are shopping these days.”

Wal-Mart, based in Bentonville, Ark., now expects earnings of $4.90 to $5.15 a share this year, down from a previous range of as much as $5.45. Sales at U.S. Wal-Mart and Sam’s Club stores open at least 12 months — a benchmark for measuring a chain’s health — were little changed last quarter, which ended Aug. 1.

Wal-Mart’s customer base is largely families with incomes of $40,000 or less, said Bernard Sosnick, an analyst at Gilford Securities in New York. That makes the retail chain dependent on a broad economic recovery.

“There’s distress in that segment of the economy,” he said. “It is a challenging retail environment.”

Chief executive officer Doug McMillon, who took the post in February, also is contending with cuts in food stamp programs. That has squeezed the buying power of Wal-Mart’s lowest-income shoppers, Sosnick said.

Total U.S. retail sales advanced 0.2 percent in June and showed little additional progress last month, according to the Commerce Department. The lack of momentum surprised economists, who had projected a small gain in July.

One of the biggest challenges is that paychecks aren’t growing. Inflation-adjusted average weekly earnings dropped 0.2 percent in the 12 months through June, the worst performance since October 2012, according to Labor Department data.

Macy’s chief financial officer Karen Hoguet said this week that consumers are still feeling the pinch of an economy that “at best is improving very gradually.” That has forced retailers to rely heavily on sales and promotional events to entice shoppers.

“This is a very promotional business,” she said. “Our customer very much wants value and very much responds to promotions.”

Target, the second-largest U.S. discount chain, reported preliminary earnings Aug. 5 that missed its forecast. The company, which is recovering from a hacker attack and mishandled expansion in Canada, tapped PepsiCo executive Brian Cornell as its new CEO last month. It will deliver its full results next week.