Wal-Mart Executives Said What?

Thanks to the expiration of the payroll tax holiday, people on the lower-end of the income scale have been given an additional financial burden, and by extension, Wal-Mart’s (NYSE:WMT) balance sheet has begun to feel the heat. Even Wal-Mart executives have admitted as much.

The end of the payroll tax holiday — which came about as a result of the compromise made by Congress to avoid the fiscal cliff — returned the tax that funds Social Security back to 6.2 percent. The tax was lowered to a rate of 4.2 percent back in 2008 when the economy started crumbling. For the 160 million Americans who pay that tax, the expiration means less money in their pockets, and since it is a regressive tax, it means that lower income earners will be hurt the most. A family earning $50,000 annually will see its income decrease by approximately $1,000 this year.

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Any reduction in income will change how much shoppers spend at Wal-Mart. Since the recession began in 2008, the company’s sales have been subject to a payroll cycle; sales rise when paychecks are issued and subsequently shrink over the course of the two-week pay period. This trend continued into 2012. As Wal-Mart’s Chief Executive Officer Mike Duke told the Daily Beast in early December, “customers are still working to get by month to month, paycheck to paycheck.”

Now that the tax has been back at its pre-2008 level for more than a month, analysts have begun to inspect how smaller paychecks have hurt Wal-Mart’s business. The company generates more than 70 percent of its revenue from sales in the United States, so it is impossible that decreased earnings power in its key customer base — lower-income Americans — could not have a significant effect…
On Friday, Cleveland Research announced that Wal-Mart’s U.S. sales have slowed significantly over the past three to four weeks, and that its first quarter comparable same-store sales were already running negative. The firm added that it currently “sees downside to consensus estimates for the year and potential downside back to the mid to low $60′s.”

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But there is more concrete evidence of this problem than the analysis of one research firm. In a series of emails leaked to Bloomberg on Friday, one Wal-Mart executive called February sales a “total disaster.” The publication’s report showed an email from Wal-Mart’s vice president of finance and logistics, Jerry Murray. “In case you haven’t seen a sales report these days,  February MTD sales are a total disaster,” he wrote on February 12. “The worst start to a month I have seen in my ~7 years with the company.” The company attributed the horrible sales to the hike in the payroll tax. In the email, Murray asked, “Where are all the customers?” and “where’s their money?”

Shares of Wal-Mart were off as much as 3 percent on Friday.

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