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Wal-Mart’s Earnings Fall

Times Staff Writer

Wal-Mart Stores Inc., the world’s largest retailer, on Tuesday posted its first quarterly earnings decline in a decade, a result of costs associated with the company’s decision to exit the German market.

The company also responded to a California judge who tentatively ruled that it is violating state law in regard to rest breaks for employees.

The company said it was encouraged by the Alameda County Superior Court’s recognition that its rate of compliance with meal break laws was significantly higher than any other large-scale national retailer.

But it declined to comment on the judge’s tentative ruling that would require the retailer to report annually on its compliance with the state’s rest-break laws.

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Wal-Mart on Tuesday said fiscal second-quarter net income fell 26% to $2.1 billion, or 50 cents a share, compared with $2.8 billion, or 67 cents, a year earlier.

Sales in the quarter ended July 31 rose 11% to $85.4 billion. Analysts had expected $86.2 billion, according to a Thomson Financial survey.

Sales at U.S. stores open at least a year, a key measure of retail performance, increased 1.7% -- the slowest growth in six quarters.

The retailer was “quite honestly disappointed with sales performance in our U.S. stores,” Chief Executive H. Lee Scott said in a prerecorded message. “Customers tell us that they are most concerned about gas prices.”

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Selling its German operations resulted in a $863-million write-down. The company announced it would pull out of Germany in July. In May, Wal-Mart said it would leave South Korea.

Shares of Wal-Mart fell 55 cents to $44.55.

In the California case on rest breaks, a Wal-Mart spokesman stressed that it was a tentative ruling. If affirmed after a hearing in the next few weeks, the court would grant the plaintiffs’ request for an injunction mandating that the company follow state laws regarding rest breaks and report to the court on its progress.

“This is a tentative opinion, and as a result it wouldn’t be appropriate to discuss it in any greater detail,” Wal-Mart spokesman John Simley said. “Our most important asset is our people, and we always work to improve every aspect of our operations.”

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The tentative ruling comes after the second phase of a case alleging that Wal-Mart denied 116,000 current and former employees meal and rest breaks as required by California law.

In the first part of the case, a jury in December awarded the employees $172 million in damages for failing to provide lunch breaks or to give employees an extra hour of pay instead of the required break. Wal-Mart is appealing the verdict.

A final ruling on this portion of the case, which will be decided in the Oakland court by Judge Ronald M. Sabraw, is expected in 30 days, an attorney for the plaintiffs said.

“It underscores the enormous size and economic clout that Wal-Mart has over its workers,” said Harley Shaiken, a UC Berkeley professor specializing in labor issues. “Wal-Mart is our largest private employer and it has operated as if it were a growing regional chain -- that disconnect has resulted in rulings such as this one.”

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Although the judge praised the company’s formal policies regarding employee rest breaks, and the fact that company policies call for a 15-minute break every four hours while California law requires only a 10-minute break, he nonetheless criticized the company’s implementation.

“Wal-Mart is not in compliance with California’s rest break laws,” Sabraw wrote. “And while much has changed since 2001 concerning Wal-Mart’s meal period compliance efforts, the evidence of Wal-Mart’s progress on rest breaks is found wanting.”

California law requires employees to provide at least 30 minutes for meals for every five hours worked and rest periods of 10 minutes for every four hours of work. Employees who are denied the breaks are entitled to an extra hour of pay.

Bloomberg News was used in compiling this report.

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