Tax hike hitting retailers

New York - The payroll tax increases and delayed tax returns that Wal-Mart Stores Inc. executives blamed in internal emails for weak February sales may be poised to hurt other retailers as well.

Wal-Mart had the worst monthly sales start in seven years, according to internal e-mails obtained by Bloomberg News and reported Feb. 15. Jerry Murray, Wal-Mart's vice president of finance and logistics, in a Feb. 12 email called the retailer's February month-to-date sales "a total disaster."

"It's not Wal-Mart specific," David Strasser, an analyst for Janney Montgomery Scott in New York, said in a telephone interview. Family Dollar Stores Inc., Target Corp. and supermarkets are encountering similar effects, he said. "Anyone with any low-end exposure is going to feel this. That customer runs out of money every day as it is. Now they're really going to run out of money."

When a payroll-tax break expired Dec. 31, Americans began paying 2 percentage points more in Social Security taxes on their first $113,700 in wages. That's about $15 a week for a person making $40,000 a year. In addition, tax returns may be delayed in part because of the late release of forms, Wal-Mart, the world's largest retailer, said in a report.

Delayed tax rebates will be "a significant short-term issue" for retailers such as AutoZone Inc. and Advance Auto Parts Inc. as well as Wal-Mart, David Schick, a Stifel Financial Corp. analyst, wrote in a Feb. 15 report.

"I think it's broad," Schick, based in Baltimore, said in a telephone interview.

The payroll-tax increase may keep pressure on consumer spending, Daniel Binder, a Jefferies & Co. analyst in New York, wrote in a Feb. 15 report. It's reasonable that Wal-Mart sales would be hurt and "we suspect the same holds true for other retailers serving middle to lower income consumers as well."

Hide Comments


Loading comments...
Hide Comments