Wal-Mart’s profits climb, but the outlook is wary

Refund delay, payroll tax affect customers’ spending

The New York TimesFebruary 22, 2013 

For Wal-Mart, the tax code gave and the tax code took away.

The company reported higher-than-expected fourth-quarter earnings Thursday of $1.67 a share, up from $1.51 a share a year ago, largely because of tax credits that brought its corporate tax rate lower than usual.

But the recent end of a payroll-tax reduction and an Internal Revenue Service delay in processing tax returns hit consumers, and that affected the holiday period and sales in February. For the fiscal fourth quarter, which ended Jan. 31, same-store sales rose 1 percent at Wal-Mart stores in the United States; analysts had expected a 1.7 percent increase.

“We didn’t finish quite as strong as we would have liked, primarily due to a little slower holiday season than we would have planned,” Chief Financial Officer Charles M. Holley Jr. said in a call with reporters. Executives said the weakness continued into early February.

Wal-Mart’s sales rose 3.9 percent from the quarter a year ago, to $127.1 billion, while profits increased to $5.6 billion.

At $1.67 a share, Wal-Mart’s profits came in higher than analysts’ expectations of $1.57 a share. That was primarily because of the research-and-development tax credits and the primary tax credits, Holley said.

But William S. Simon, chief executive of Walmart U.S., said the current quarter had gotten off to a shaky start due to the tax-refund issue.

“Because of the late change in the tax law last year, the IRS opened filings later than they did last year, and the result of that has been about a three-week delay in the status of tax refunds,” Simon said in the call with reporters. “We saw very near to the end of the fiscal last year into February the impact of the delay in those impact-refund checks.”

Last year at this time, the company had cashed about $4 billion worth of refund-anticipation and refund checks, and this year it has cashed $1.7 billion worth. That means customers may delay big purchases, Simon said.

“We also know that when a customer received an income tax refund, say, the week before the Super Bowl, we have pretty good data that suggests that they’ll buy a television, for example,” he said. “With the delay in the refund moving into March, late March, we don’t have any visibility yet as to what they’ll do with their checks.”

The company’s holiday season also did not meet expectations. Simon said events like the Black Friday sale went well, but “we also saw a lull in sales between Thanksgiving and Christmas that we think was brought about by a very, very successful Black Friday event and an extra week between Thanksgiving and Christmas.” However, the company said that its layaway sales had increased by 10 percent for the season versus last year.

There were bright spots for Walmart U.S., including the sporting goods category, where guns and ammunition sales “are mirroring the market right now,” Simon said. After the Newtown shootings and renewed interest from lawmakers in limiting gun sales, prices have increased, and supply has dried up. Walmart is continuing its three-box limit on ammunition purchases, Simon said, and “there are certain firearms that are very difficult to get.”

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