When Shoppers Skip Wal-Mart, You Know They're Rolling Back On Spending

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If discount every-day necessities can’t tempt shoppers into stores, it’s a clear signal that consumers feel stifled by a tough economy at home and overseas.
That’s the picture provided this morning by Wal-Mart’s latest quarterly report. The world’s largest retailer cut its annual profit and revenue outlook and reported second-quarter figures that missed expectations.
Wal-Mart, operating 10,800 stores across 27 countries, is seen as an economic bellwether because it’s a go-to spot for so many households, where they shop for groceries, home supplies and gasoline. Nonexistent wage gains and a sluggish recovery are hampering spending in America and Europe, while slowing growth in developing companies keep the emerging middle classes there from spending much, too. Listen to Wal-Mart CFO Charles Holley: “”The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending.”
Wal-Mart isn’t alone in contending with uncertain shoppers. Macy's M -2.83% yesterday reported downbeat results and blamed it on a weak shopping period. A month earlier, Target TGT -0.72% lowered its full-year profit forecast and turned in disappointing sales. One top Wal-Mart competitor, Costco, managed to impress, though: its quarterly profit just beat analyst estimates.
Looking ahead, Wal-Mart now expects sales to increase 2% to 3% this year. Tellingly, Wal-Mart had earlier forecast sales growth between 5% to 6%. In addition, Wal-Mart reduced its profit outlook by a dime, to $5.10 to $5.30 a share. Analysts believed Wal-Mart sales would rise 5.4% with $5.30 a share in profit.
“The key issue here then, we have to assume that back-to-school is not off to a good start,” says Janney Montgomery Scott analyst David Strasser, who rates Wal-Mart as Buy. Empty stores during August would be a troubling situation for retailers, who rely on the back-to-school period. It’s one of only two times in the entire year when they can count on turning a profit. The signal from Wal-Mart’s numbers does seem to contradict a reading from the government on retail spending, but as Strasser notes, it’s just one of several data points that tell a different story about the health of the consumer.
In the second quarter, the Bentonville, Ark.-based retailer earned $4.07 billion, $1.24 a share,  from $4.02 billion, $1.18 a share, a year earlier. Excluding a one-time item, Wal-Mart made $1.25 a share, matching Wall Street’s expectations.
Revenue was lighter than anticipated, though. Sales grew 2.3% to $116.2 billion, while analysts expected $118.09 billion.
At Wal-Mart stores open at least a year, sales fell 0.3%. Analysts predicted those sales would increase 0.7%. This revenue figure is an important marker for retailers because it strips away volatile results from newly opened or closed locations.
Wal-Mart shares fell 2.4% to $74.60 in early morning trading.
Reach Abram Brown at abrown@forbes.com.