Walmart has been in the national spotlight for their poverty wages and employees’ reliance on government assistance.  In their quarterly report, Walmart is set to announce that their profits have taken a hit. In a moment of rare honesty, they cited the Republican funding cut to the federal food stamp (SNAP) program as a part of the reason for their lower profit margins, admitting that the federal food stamp program amounts to corporate welfare that subsidizes their profits.
“Walmart caters to lower-income consumers which have been hit disproportionately hard,” said Morningstar analyst Ken Perkins.
The irony is that the Walton family is notorious for supporting Republican candidates who want to cut beneficiaries.  Now, it seems that it could be their undoing.  There is only so much you can cut before it starts to negatively affect an already fragile economy.
Just how bad are things for Walmart?
Wal-Mart Stores Inc., the world’s largest retailer and the country’s largest single private sector employer, said it now expects sales at its namesake US stores and its Sam’s Club chain to be “slightly negative” for the quarter, which included the crucial holiday shopping period.
Previously the company forecast “relatively flat” sales at Walmarts and 0-2 percent growth at Sam’s Clubs.Walmart reports fourth-quarter earnings on February 20. The company had previously forecast underlying earnings of $1.60-$1.70 per share.
“Despite a holiday season that delivered positive comps, two factors contributed to lower comp sales performance,” said Walmart chief financial officer Charles Holley — referring to sales at comparable stores.
According to Holley, a large part of their woes is due to larger than expected cuts to SNAP.
About 20 percent of the company’s shoppers are food stamp users, according to Cowen analyst Tal Lev. Wal-Mart did not respond to calls for details on the number of shoppers who use food stamps at its stores.
About one in seven Americans, or 48 million, took a hit in 2013 when the federal government food stamps program was cut by more than $5 billion. Additional cuts are expected this year.
As more and more Americans find less money for essentials, they are starting to take their business elsewhere.  After a large source of growth in the past decade, Walmart is finding competition from online retailers like Amazon and other businesses where customers can get more “bang for their buck.”
Walmart is also facing serious competition from dollar stores and other small-format chains, Perkins added.
Walmart is also finding major problems with their stores overseas due largely in part to a failed business model.
Walmart International’s profitability has suffered from an aggressive expansion and lags that of the overall company. The unit is also the focus of a costly bribery probe.
The company said it had closed about 50 stores in Brazil and China.
In October, Wal-Mart said it would close up to 25 small and mid-size stores across Brazil, where it operates about 560 locations and employs about 80,000 people. It also said it would end the year with 22 new stores and 44 renovated ones there, at a total investment of nearly 1 billion reais ($413.2 million).
The Brazilian market is showing signs of weakness as the economy enters what is widely expected to be its fourth straight year of sluggish growth.
Wal-Mart Brasil, which is on its third CEO since 2008, has remained mired in third place behind French rivals Carrefour (CARR.PA) and Casino (CASP.PA), which controls market leader Grupo Pão de Açúcar SA (PCAR4.SA). The U.S. company’s “everyday low price” business model never fully caught on with Brazilian consumers, who are accustomed to hunting for big sales in the competitive retail market.
“They can’t just do the Walmart way in each and every country it trades,” said Stephen Springham, an analyst with Planet Retail in London.
The company has not done enough to understand some of the finer nuances of the international markets in which it operates and adapt accordingly, Springham added.
For instance, many Chinese customers prefer to shop small and often for groceries during the week. That is unlike many of their U.S. counterparts who prefer bulk shopping so they can make fewer trips, he said.
Wal-Mart’s growth in India has been hindered by still-evolving rules on foreign investment, an internal bribery probe and the breakup of its partnership with New Delhi-based Bharti Enterprises in October.
Wal-Mart took over its Indian partner’s 50 percent stake in Bharti Wal-Mart Pvt Ltd, which runs 20 wholesale stores under the Best Price Modern Wholesale brand.
However, if Wal-Mart wants to set up its own retail stores in Asia’s third-largest economy, foreign investment rules require the company to find another local partner to own 49 percent of that business.
The retailer said a charge for certain terminated franchise and supply agreements in India would be higher than it had previously estimated.
The company also added charges of 6 cents a share to account for tax-related liabilities in Brazil and 5 cents for employment claims there. In addition, it expects to record a charge for certain store leases in China.
There is another reason for their lower profits that Walmart is not discussing.  The added attention to Walmart’s low wages and dependence on the government to assist their employees with SNAP benefits, Medicaid and welfare has cast the company in a very negative light.
This is not the first time that Walmart failed to meet their expectation.  In their last quarterly report, Walmart had much of the same problem, but attributed it to shoppers being cautious.  Walmart has the opportunity to take this time to change their business model, give their employees a livable wage, full benefits, and fix their problems with manufacturers overseas.  However, that is wishful thinking. Instead, Walmart will find a way to cut overhead by working their employees longer hours while also cutting their number of employees.  Walmart has also been one of the top donors for Congress members that oppose a minimum wage increase.  The American public is becoming increasingly aware of this, which is why Costco is doing so well in comparison.  Everything must come to an end and, while Walmart is still a long way from going out of business, this emerging trend should give their executives some cause for concern.
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While Walmart is about to announce poor profits, Anonymous is starting to move against Walmart for their treatment of their employees.