Now things really get interesting

Yesterday’s release of disappointing sales and profits at Walmart was hardly unexpected, but it heightened concerns about the health of the consumer and sparked a broader market sell-off.

Walmart shares had been trending lower after peaking around $78 at the start of the month, but they tumbled nearly $2 on Thursday to close at $74.41 as investors found the sales weakness disconcerting even if it wasn’t unexpected. Even Retailing Today saw it coming. On August 2, we wrote, “Surging home prices and 401K balances have millions of Americans feeling better about their personal balance sheets and the state of the economy, but Walmart’s core shoppers remain under duress and that could spell trouble for second quarter sales.”

That’s not quite the same as declaring the company would outright miss same store sales guidance of flat to up 2% at U.S. stores, but directionally it was correct. The point then, as now, was that a still-challenging job market, a lack of wage growth and high energy costs means Walmart’s core paycheck-to-paycheck shopper is still under pressure to choose between needs and wants.

That means Walmart is in for a challenging back half of the year. The company has already tempered its sales outlook for the third quarter by suggesting comps will be flat. The bulk of back-to-school sales fall in the third quarter and several forecast, including one by the National Retail Federation, has forecast sales this year below last year’s level. Walmart is a prime destination for back-to-school, but if the overall market is shrinking this year it will need to gain share from other competitors just to produce a flat comp.

Things really get interesting in the fourth quarter when the late arrival of Thanksgiving will compress the traditional Christmas selling period by six days. Thanksgiving falls on November 28 this year compared to November 22 last year.