Walmart: Hardly a ‘Total Disaster,’ But Worries Remain

Later tax refunds, not payroll tax, to blame for low February sales

   
Walmart: Hardly a ‘Total Disaster,’ But Worries Remain

We can all breathe at least a temporary sigh of relief.

Walmart‘s (NYSE:WMT) February sales were not the “total disaster” those leaked internal emails said they were — and what sales weakness the world’s largest retailer did see was not due to the payroll tax hike.

To be sure, the tax hike, higher gas prices and softer consumer confidence are not good news for retail sales, which account for about half of all consumer spending — that great driver of the economy. And, yes, Walmart did see pressure on those fronts in its most recent quarter.

But, happily, the gargantuan discounter is hardly flashing a warning sign for the state of consumer spending or the whole discount and dollar-store sector.

At least not yet.

It turns out that the crummy February sales receipts weren’t due to the payroll tax hike, after all, the company said in its quarterly report Thursday. Rather, it was because tax refunds went out later this year due to the so-called fiscal cliff. Once those checks came in the mail, business picked up.

As Walmart said in its earnings release:

“February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.”

That’s definitely better news for the market and, well, for all of us. A tepid recovery is no time for austerity, especially for those Americans living paycheck to paycheck, or any investors betting on the places they shop, such as Target (NYSE:TGT), Family Dollar (NYSE:FDO), Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG).

Indeed, as InvestorPlace editor Jeff Reeves recently noted, the discounters and dollar stores have been serious money losers in an otherwise strong market over the last six months. Just take a look at this chart, courtesy of S&P Capital IQ, below:

WMT CHART Walmart: Hardly a Total Disaster, But Worries Remain

That said, it was hardly a spotless quarter for Walmart, a component of the Dow Jones Industrial Average. Yes, earnings beat Wall Street’s average forecast, but revenue came up light. And, most important, Walmart’s first-quarter profit forecast was below what analysts were modeling.

But, hey, if nothing else, those leaked emails late last week greatly tamped down expectations heading into the quarterly report. The stock fell nearly 3% since the news broke Friday, to $69.21 from more than $70.

That helps explain why Walmart’s stock popped on a mixed quarter and disappointing guidance.

It’s also not bad that the mega-retailer is returning more cash to shareholders. In a move to appease investors and prop up its stock price, the company hiked its quarterly dividend by 18% to 47 cents a share. At the current share price, that lifts the yield to a more attractive 2.7%, up from 2.3%. That’s something we very much like to see from one of InvestorPlace’s Dependable Dividend Stocks.

So, no, Walmart’s sales were hardly a total disaster. But it’s clear from the figures and company commentary that higher taxes, gas prices and slumping consumer confidence remain real headwinds for a big chunk of the nation’s consumers.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/02/walmart-hardly-a-total-disaster-but-worries-remain/.

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