Wal-Mart Stores Hurt by Food Stamp Rollbacks

Friday, 31 Jan 2014 02:11 PM

By Drew MacKenzie

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Wal-Mart stores and its Sam's Club chain are apparently hurting from the cuts in the federal food stamp program that went into effect in early November.

The impact from the government's reduction in the Supplemental Nutrition Assistance Program benefits had a much greater effect on the world's largest retailer than originally expected by the company. Combined with consumer fears about the economy and winter storms that also hurt store business nationwide, the cuts made a bad situation for Wal-Mart even worse, according to a statement from Wal-Mart Chief Financial Officer Charles Holley carried by the Associated Press.

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The estimated $5 billion cut from the program dragged down store sales over the Christmas period, more than offsetting the usual bump from the holiday season during the fiscal fourth quarter.

Noting that about 20 percent of Wal-Mart shoppers use food stamps, Morningstar financial analyst Ken Perkins told Reuters, "Wal-Mart caters to lower-income consumers which have been hit disproportionately hard relative to higher-income consumer."

According to various reports, about one in seven Americans was affected by the food stamps cutbacks in 2013. The program will also face further decreases in 2014.

The Arkansas-based company, which has 11,096 stores worldwide, now expects earnings for the fourth quarter ending Jan. 31 to be at or slightly below the low end of its previous forecast of $1.60 to $1.70 a share. The company is also predicting the 2014 earnings will be at or slightly below its previous outlook of $5.11 to $5.21 a share.

Holley said in his statement the sales were hurt by eight winter storms that resulted in some brief store closings. He added that the Sam's Club division was even more negatively affected by the inclement weather throughout the fourth quarter.

Earlier this month Wal-Mart announced that it was laying off 2,300 workers at Sam's Club, which amounts to two percent of its 116,000 workforce. It was the largest layoff since 2010 when Sam's Club eliminated 10,000 jobs, the Associated Press reported.

Wal-Mart is the latest in a long list of U.S. retailers that in recent weeks have had to adjust their financial forecasts to reflect lower earnings, lay off workers, and close stores. Amazon Inc, the world's largest online retailer, said Thursday that it had missed Wall Street estimates for the holiday season and warned investors about a possible operating loss, Reuters reported.

Wal-Mart has also been facing problems with sales overseas, particularly in Brazil and China where it has closed 50 stores. In South America, the economy has been struggling for four straight years, hurting Wal-Mart's sales there, while fierce competition from French rivals Carrefour and Casino have also hit the company's bottom line.

But according to Reuters, analyst Perkins says there's still hope for a Wal-Mart rebound, particularly in the United States.

"When you look at the long-term drivers of Wal-Mart's business and their competitive advantage, the U.S. business is still the strongest business," he said. "If they can get that back on track, then I think that gives them more options to right the wrongs or improve the international business as well."

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