Wal-Mart Earnings Disappoint: Consumers Are Really Strapped

Wal-Mart Stores, Inc. says it is well aware that its second-quarter earnings--$3.11 billion on sales of $91.99 billion--are a disappointment. And while conceding that it still has considerable merchandising problems in apparel and home furnishings, the Bentonville, Ark.-based behemoth says that it is also pressured by how broke consumers are. "People are running out of money at the end of the month," a company exec says in a conference call. "The paycheck cycle is more pronounced now than it ever has been."

The company says it has increased the number of rollbacks--the lower prices that Wal-Mart has vowed to keep as the heartbeat of its marketing strategy--more than 20% in U.S. stores.

Sales are stronger in food and pharmacy, and Wal-Mart says it is exceeding internal targets. And it is also pleased with its new strategy of selling well-known consumer electronic brands at low prices. "Wal-Mart's focus on top brands is yielding results, and we are very pleased with sales of Dell computers," a company executive says in the conference call.

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Back-to-school looks promising, it says. And because several states have delayed school openings, the company says it expects to see a pickup in back-to-school sales "closer to the event."

Still, for the third quarter, Wal-Mart is predicting comparable store sales increases in the U.S. of just 1 to 3%.

Wal-Mart isn't the only gloomy retailer. The Home Depot says its second-quarter net earnings fell to $1.6 billion, compared with $1.9 billion, in the same period a year ago.

"While the challenging housing market continues to present us with a tough selling environment, our financial performance was in line with our expectations," the company says. "We believe the housing and home improvement markets will remain soft into 2008."

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