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Wal-Mart cuts profit forecast on holiday eve

Rivals, staffing woes erode its bottom line

– Wal-Mart Stores Inc., the world’s largest retailer, cut its annual profit forecast for the second time since August as the discount chain struggles to prevent economically challenged customers from taking their business to dollar stores and other rivals.

While the company’s low-income customers are among the hardest hit amid persistent unemployment and higher taxes, some of its troubles are self-inflicted. The discount chain has alienated some U.S. shoppers because it doesn’t have enough workers to keep shelves adequately stocked, leading some consumers to decamp to smaller-format stores that offer merchandise starting at $1. Sales at Wal-Mart U.S. stores open at least 12 months excluding fuel fell 0.3 percent in the quarter ended Oct. 25. Analysts predicted they’d be little changed.

“In retail, it comes down to same-store sales, and today was another disappointment,” Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, said Thursday. “On the fringe, they’ve got to be losing customers.”

He recommends buying the shares.

Profit per share in the year ending January 2014 will be $5.11 to $5.21, excluding items such as store closings in Brazil and China, Bentonville, Ark.-based Wal-Mart said Thursday in a statement. The midpoint of the range trails analysts’ average estimate of $5.19. The company forecast $5.10 to $5.30 three months ago and profit as high as $5.40 in February.

Wal-Mart’s U.S. same-store sales have slid for three straight quarters as a 2 percentage point increase in Social Security taxes reduced spending among its shoppers, many of whom live paycheck to paycheck. The 16-day federal government shutdown that ended Oct. 17 also has damped consumer confidence. The Thomson Reuters/University of Michigan index of consumer sentiment dropped to the lowest level in almost two years this month.

Another challenge for Wal-Mart has been keeping its shelves adequately stocked with a smaller workforce. As of September, the U.S. workforce at Wal-Mart’s namesake and Sam’s Club warehouse chains fell by about 120,000 employees in the past five years, to about 1.3 million. In that time, the company had added about 500 U.S. stores.

Wal-Mart in September said it was hiring 55,000 seasonal workers and adding an additional permanent 70,000 part-time and full-time workers to help gear up for the holiday season.

Wal-Mart, which has a corporate goal of keeping inventory growth at or less than the rate of net sales growth, scaled back its orders from suppliers for the third and fourth quarters to keep inventory from rising too quickly.