Thanks to the federal government's relentless push to cut spending, Walmart's shoppers are hurting and so is the retailing giant.
The company announced on Thursday that it expects relatively weak sales at the end of the year, as its shoppers, struggling under a range of cuts in government programs and benefits are having trouble making ends meet.
"We know the customer continues to be challenged by ongoing uncertainty around health care costs, the payroll tax increase and recent SNAP [food stamp] reductions," Walmart U.S. CEO Bill Simon said on a recording announcing the company's third quarter earnings.
Wal-Mart's reduced outlook comes as the company reported a 2.8 percent increase in its third-quarter profit, but saw a revenue shortfall. Its shares slipped in premarket trading Thursday.
Walmart counts on the money it takes in from food stamps. The company nets about 18 percent of all food stamp dollars. Congress slashed food stamp benefits earlier this month, a move that could hurt Walmart and other retailers.
Simon's comments on Thursday seemed to conflict with remarks he made earlier this year claiming that the retailer might actually benefit from the food stamp reduction because when shoppers become more concerned about price, Walmart becomes more relevant.
Walmart shoppers are also reeling from an increase in the payroll tax and the government shutdown that dinged their confidence, company officials said on the call.
Against this background, Wal-Mart is raising its game for the holiday shopping season, which accounts for anywhere from 20 percent to 40 percent of retailers' annual revenues.
Like other rivals, the discounter is kicking off the official start earlier into Thanksgiving. It brought back its holiday layaway program and says it is sharpening prices on key holiday items even more than last year. Wal-Mart is also aggressively promoting holiday items on its website.
"The retail environment, both in stores and online, remains competitive," said Mike Duke, president and CEO of Wal-Mart Stores Inc. said in a pre-recorded conference call. "At the same time, some customers feel uncertainty about the economy, government, jobs stability and their need to take care of their families through the holidays. "
Wal-Mart said that it earned $3.74 billion, or $1.14 per share in the three-month period ended Oct. 31. That compares with $3.64 billion, or $1.08 per share, in the year-ago period.
Net sales rose 1.6 percent to $114.88 billion, up 1.6 percent in the year ago period.
Analysts were expecting earnings of $1.13 per share on net sales of $116.9 billion.
U.S. Wal-Mart stores, which account for 58 percent of the company's total sales, posted the third straight quarter of declines in a key revenue figure after six consecutive quarters of increases. Revenue at stores open at least a year — considered an important measure of a retailer's performance — fell 0.3 percent at Wal-Mart's U.S. stores. Analysts were expecting the figure to be unchanged.
Wal-Mart said that the quarter started slower than it would have liked but picked up in September and October.
The overall figure was down 0.1 percent, including a 1.1 percent increase at Sam's Clubs.
The company expects that figure to be unchanged for Wal-Mart's U.S. stores for the fourth quarter.
Overall, total sales increased 2.4 percent for Wal-Mart's U.S. business, 1.1 percent at Sam's Clubs and 0.2 percent at Wal-Mart's international business.
The company said that for the fourth quarter, it expects earnings per share to be in the range of $1.50 to $1.60. It said that results would be hurt by the company's move, announced in late summer, to close 50 under-performing stores in Brazil and China.
The company expects adjusted earnings per share for the fourth quarter to be $1.60 to $1.70.
For the year, Wal-Mart now expects earnings per share to be from $5.01 per share to $5.11 per share. That compares with its forecast made in August of $5.10 and $5.30 per share. That was downgraded from May's forecast.
Wal-Mart expects adjusted earnings per share for the full year to be $5.11 to $5.21.
Analysts expected adjusted earnings of $1.69 per share for the fourth quarter and $5.19 per share for the full year, according to FactSet.
Its shares fell $1.37, or 1.7 percent, to $77.53 in premarket trading about an hour before the market opening.