Wal-Mart Stores, Inc., (Walmart) had mostly good news for Wall Street yesterday when it reported earnings of $3.78 billion, or $1.14 per share, in the first quarter. Those earnings were consistent with Walmart’s expectations of $1.11 to $1.16 per share and just short of analysts’ average forecast of $1.15 per share.
Those earnings were likely a welcome sign for the company who had worried internally this year about slow sales. Those fears were made public when emails were leaked referring to February as “a total disaster.” In the text of those emails, Walmart VP of Finance Jerry Murray reported that Walmart had the worst sales start in seven years.
I had suggested at the time that sluggish sales might be linked to tax season. It turns out that Walmart agrees.
If you don’t think timing and tax policy can be linked directly to the economy, think again. Delayed refund checks due to a late start to the tax season this year and snafus with returns claiming education credits no doubt contributed to slower sales because consumers had less cash in hand. By mid-February, the date that most refunds had been issued in 2012, the Internal Revenue Service was just getting started issuing returns in 2013. Bill Simon, Walmart U.S. president and chief executive officer, acknowledged this week that the delay contributed to slow sales, saying “February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.”
And there was something else: those disappearing payroll tax cuts. Simon mentioned the cuts not once but twice in his remarks, noting at first that sales have likely slowed because families had grown used to the cuts – and will now have to get used to not having them. He said, “[w]e are confident that our low prices will continue to resonate, as families adjust to a reduced paycheck and increased gas prices.” With respect to sales moving forward, he offered that “[w]e continue to monitor economic conditions that can impact our sales, such as rising fuel prices, changes in inflation and the payroll tax increase.” Despite those delayed tax refunds and payroll tax cuts, it appears that Wal-Mart managed to bounce back.
It wasn’t all bad news on the tax front: the company reported that benefited from a “lower than expected effective tax rate.” The effective tax rate for the retail giant for the year was 31.0%, down nearly two points from last year. Walmart saw its biggest drop in the effective tax rate in the fourth quarter, a nearly three-point drop to 27.7% as compared to 30.9% last year. The company touted “a number of discrete tax items, including positive impact from fiscal 2013 legislative changes, most notably the American Taxpayer Relief Act of 2012” for the dip in tax rates.
