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Wal-Mart's Weak Sales Raise Fears Of Consumer Exhaustion

Wal-Mart (WMT) Stores fell nearly 3% Thursday after the world's largest retailer reported sluggish second-quarter profit growth and sales well short of estimates.

Taken together with Macy's (M)poor showing Wednesday, Wal-Mart's results raised concerns about consumer spending in the face of payroll tax hikes and an economy that has firmed but still isn't growing fast enough to produce strong job and income growth.

"Jobs being created are not in high-wage, high-growth industries that provide people with income to spend at a higher level," said Ken Perkins, president of market tracker Retail Metrics.

Wal-Mart earnings rose 6% vs. a year earlier to $1.25 a share, meeting analyst estimates.

Q2 sales rose just 2% to $116.95 billion vs. Wall Street's $118.47 billion target. Same-store sales fell for a second straight quarter.

"The retail environment was challenging across all of our markets," CEO Mike Duke said in a conference call with analysts.

Wal-Mart slashed its full-year earnings and sales targets on its first-half performance, but Duke said, "We are executing plans to strengthen our top line performance for the rest of the year and expect sequential improvement in the back half.

Wal-Mart closed down 1.99 to 74.41.

Kohl's (KSS) reported a 4% EPS gain and a 2% sales rise, in line with estimates. The midtier department store chain guided Q3 earnings estimates lower. But executives touted improving profit margins and good sneaker sales. Kohl's shares rose 5%.

Regional department store operator Dillard's (DDS) popped 7% on strong earnings and sales late Wednesday. Kohl's and Dillard's helped put department stores among leading groups Thursday.

Macy's said Wednesday that Q2 earnings per share rose a bit to 72 cents, 6 cents below views. Sales dipped 1% to $6.07 billion, the first drop in years. Wall Street expected $6.3 billion.

The miss by Macy's, which operates its namesake stores and Bloomingdale's, was a surprise. Most high-end chains such as Michael Kors (KORS) have fared well.

"I think it's operational at Macy's," Perkins said.

Macy's fell a fraction Thursday after falling 4.5% Wednesday.

Late Thursday, upscale Nordstrom (JWN) said earnings rose 24% to 93 cents a share, beating views by 5 cents. But sales rose 3% to $3.1 billion, below estimates. The retailer also cut its full-year EPS and same-store sales targets. Shares fell 3% late.

Looking to stores' second half, Retail Metrics' Perkins said, "My sense is it's not going to get worse. But I don't see a sharp snapback either."