Wal-Mart Stores (WMT) Fourth Quarter And Full Year Earnings: Food Stamp Cuts, Sam’s Club Restructuring And Troubles Abroad Is Seen Reducing Growth

 @angeloyoung_a.young@ibtimes.com
on February 19 2014 6:17 AM
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A Wal-Mart store. Reuters

Wal-Mart Stores Inc. (NYSE:WMT) is expected to report lower net profit for its fourth quarter and full fiscal year 2013 thanks to a lackluster holiday shopping season, weak international performance and restructuring of its Sam’s Club subscription warehouse unit. Cold winter weather that closed some stores in the U.S. in January and an unexpected hit from cuts to federal food assistance programs pushed year-end performance down as well.

The world’s largest retail grocery and general merchandise chain will release its earnings for the fourth quarter ended Jan. 31 and full fiscal year at 7 a.m. EST Thursday, before markets open. Analysts polled by Thomson Reuters expect FY 2013 fourth-quarter earnings per share of $1.37, including one-time charges, on revenue of $130.55 billion, compared to a profit of $1.67 per share on revenue of $127.92 billion in the year-ago period.

For the company’s fiscal year, net income is seen down from $17 billion ($5.02 per share) on $469.16 billion in revenue in FY2012 to $16.83 billion ($4.87 per share) on $477.22 billion.

Wal-Mart shares shed 3 percent in its fiscal fourth quarter and are down 4.2 percent since the start of the year. In the past five trading days WMT recovered 2.1 percent and was trading Tuesday at around $75.35, up from about $68 a year ago.

The company cut its fourth-quarter quarterly profit outlook on Jan. 31 to or below its previous forecast of at least $1.60 a share. For the year the company said it expected earnings to come in at or a little below $5.11 per share.

On Jan, 31, Wal-Mart’s new CFO Charles Holley added another reason for the expected decline in growth: the end of extensions to Recovery Act (i.e. stimulus) benefits for low-income households that were passed in 2009 and expired on Nov. 1 just as Wal-Mart was starting its fourth fiscal quarter.

This includes cuts to a program Wal-Mart has profited from in recent years: taxpayer-supplied nutritional assistance support through the federal Supplemental Nutritional Assistance Program. J.P. Morgan estimated in a research note last week that Wal-Mart has about an 18 percent share in the SNAP market that was worth about $80 billion a year prior to the end of extended benefits.

Reductions to food stamps have led to about 850,000 low-income U.S. households losing an average of $90 a month, according to the Center on Budget and Policy Priorities. That spells less money in the pockets of low-income Americans, many of whom shop at Wal-Mart’s outlets, in the fourth quarter.

J.P. Morgan estimates a combinations of store-closing cold weather in January and the reductions to food stamps cost the company between 0.3 and 0.4 percentage points to its same-store sales, a key metric that measures consumer spending at a retail operation. Analysts estimate same-store sales to be flat at best.

SNAP reductions, if they aren’t repealed by Congress, will continue to affect retail sales into the first quarter. Food-at-home inflation has been slowing, too, which for a company that depends on the shopping habits of people living paycheck-to-paycheck means losing market share to other grocers.

Also hurting EPS in the fourth quarter (and subsequently for the year) are various other factors, including terminating franchise agreements in India, closing stores in Brazil and China, tax issues in Brazil and an increase in employment claims in Brazil (in the words of the company, “as a result of company efforts to improve productivity and reduce costs”). The continuing restructuring of Sam’s Club, which has seen layoffs at underperforming outlets, also hit earnings in the fourth quarter.

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