Wal-Mart’s pre-holiday sales disappoint: Bad omen for the economy?

Wal-Mart Stores Inc. on Thursday reported lower-than-expected fiscal third-quarter revenue and another drop in a key U.S. sales figure. The retail giant also reduced its full-year forecast for the second time.

All this just before the key holiday season, which for some retailers accounts for as much as 40% of annual sales.

Thursday’s shaky results from Wal-Mart, which at any given time generates roughly one-tenth of nationwide retail sales, sends a worrisome signal about the consumer’s state of mind heading into the Thanksgiving-to-Christmas shopping surge.

“The retail environment, both in stores and online, remains competitive,” Wal-Mart Chief Executive Mike Duke in an audio recording released with the earnings report. “At the same time, some customers feel uncertainty about the economy, government, jobs stability and their need to take care of their families through the holidays.”

Wal-Mart stock fell as much as 1.5% in early trading before rebounding into positive territory.

For the quarter ended Oct. 31, Wal-Mart earned $3.7 billion, up 2.8% from a year earlier. Its earnings per share reached $1.14, a 6.5% increase that beat analysts’ forecasts by a penny.

But the Bentonville, Ark., retailer’s revenue rose only 1.6% to $114.9 billion, missing Wall Street’s $116.8 billion prediction.

And same-store sales -- sales at stores open more than a year -- slid 0.3% at Wal-Mart locations in the U.S. The slide was the third in as many quarters.

Sam’s Club same-store sales rose 1.1%, resulting in a company-wide decline of 0.1%. Wal-Mart said its traffic levels and average sales were both down.

Duke said that Wal-Mart’s performance picked up late in the third quarter, but added that “the customer continues to be challenged by ongoing uncertainty around healthcare costs, the payroll tax increase and recent SNAP reductions.”

The cuts to SNAP food stamp allotments this month affected many low-income consumers. Wal-Mart estimates that its stores take in 18% of all food stamp spending.

Discretionary dollars are limited this holiday season for many such shoppers because of stagnant wage growth this year, said Ken Perkins, president of Retail Metrics Inc.

“The consumer is more deal driven than ever and will be coaxed to spend if the price and promotion is right,” he said in a note to clients.

For the fourth quarter, the massive chain expects same-store sales to be “relatively flat” after rising 0.3% during the same period a year earlier.

Other forecasts from the company were also grim. The annual outlook was slashed to earnings of $5.01 to $5.11 a share from the $5.10 to $5.30 a share anticipated in August.

[Updated, Nov. 14, 10 a.m.: The company added that, accounting for the impact of 10 cents a share from store closures in Brazil and China and other moves, it predicts underlying earnings per share in the fourth quarter to range between $5.11 and $5.21.

On a constant currency basis, third quarter revenue would have been $116.2 billion, the company said.]

Wal-Mart is bracing for “continued pressure on sales” and warning that “competition remains aggressive for every holiday purchase.”

Stores in the U.S. will stay open on Thanksgiving, with door-buster deals rolling out at 6 p.m. – two hours earlier than last year. The company also began offering early bird specials online on Nov. 1.

Also reporting worse-than-expected earnings Thursday: Kohl’s Corp., which missed profit forecasts by five cents while third quarter net income tanked 18% and same store sales slid 1.6%.

Sales dropped 1% to $4.4 billion, while net income fell to $177 million from $215 million a year earlier. Earnings per share decreased to 81 cents from 91 cents.

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