Wall Street caught the Wal-Mart woes on Tuesday, plunging by more than 200 points after the world's largest retailer expressed concerns its shoppers are under financial pressure — even though it delivered a 49 percent profits gain in the second quarter.
The Dow Jones Industrial Average fell 1.6 percent Tuesday to close at 13,028.92 as the broader S&P 500 lost 1.8 percent to 1,426.54. In the retail sector, the declines were steep and severe in some cases, despite robust earnings from watchmaker Fossil Inc. and TJX Cos. The S&P Retail Index shed 3.6 percent to 454.93.
Among the retailers that suffered the steepest decreases were Wal-Mart Stores Inc., down 5.1 percent to $43.82; Target Corp., down 5 percent to $60.09; Kohl's Corp., down 4.8 percent to $56.41, and J.C. Penney Co. Inc., down 4.5 percent to $62.12.
Wal-Mart's carefully chosen words in a prerecorded call sent shivers down the spines of investors during the early trading session. Wall Street was already jittery after a week of steep declines rooted in the collapse of the subprime lending market. But it was Wal-Mart's remarks that set Tuesday's dark tone on the Street.
"In the Wal-Mart U.S. segment, we certainly have made improvements in some areas of the store, most notably grocery, pharmacy and entertainment. Having said that, merchandising overall is still not where it needs to be....At the same time, U.S. consumers continue to be under difficult pressure economically," said Wal-Mart's H. Lee Scott Jr., president and chief executive officer, in a morning call to Wall Street analysts.
By noon, trading volume on Wal-Mart jumped to 35 million, well above its three-month average of 18 million, as the stock lost 5 percent and stayed at that level until the market closed.
For the three months ended July 31, Wal-Mart's net income rose to $3.11 billion, or 76 cents a diluted share, from $2.08 billion, or 50 cents, in the same year-ago period. Excluding an aftertax benefit of 4 cents a share, earnings per share were 72 cents, below the 76 cents some analysts had expected. Total revenues rose 8.9 percent to $93.01 billion, which included an 8.8 percent gain in sales to $91.99 billion, from $85.43 billion a year ago. The balance of the revenue came from other income such as membership fees. Sales at Wal-Mart stores gained 6.5 percent to $59.01 billion from $55.39 billion, while its same-store sales inched up by 1.2 percent.
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