Wal-Mart profit rises, but cautions future sales

This is from The New York Times:

Wal-Mart Stores, the nation’s largest retailer and a bellwether for the economy, said Tuesday that its sales and profit surged in the first quarter, as belt-tightening consumers flocked to its bargain prices.

But the giant discount chain also cautioned that it was not immune to the economic slowdown. The company said its earnings might come in at the low end of analysts expectations for the current quarter because of higher transportation costs and customers facing problems between paychecks. It also predicted little, if any, growth in individual store sales.

During the first quarter that ended April 30, Wal-Mart’s profit increased 6.9 percent to $3.02 billion, or 76 cents a share, from $2.83 billion, or 68 cents, a year ago.

Sales increased 10.2 percent, to $94.1 billion, up from $85.4 billion, the company said in a statement.

Both figures represent record growth and Wal-Mart’s performance will probably tower over that of its competitors, which are expected to report earnings losses in the first quarter as consumers confronted higher food and fuel prices.

In my previous post, I noted that retail sales slowed for the second time in two months, and that a major factor was a 2.8 percent decline in auto sales. Excluding auto sales, retail sales rose by 0.5 percent, with the big general merchandise stores, such as Wal-Mart, posting a 0.5 percent increase, far better than the 0.1 percent increase in March. However, sales at department stores were down 0.1 percent, as Americans shift their shopping away from department stores and into bargains at the discount stores. And that is understandable in a slowing economy.

But Wal-Mart's forecast provides another nugget of important information--high transportation costs will be cutting into Wal-Mart's profit. I suspect that as Wal-Mart is cutting prices on their own merchandise, the company will also be facing high transportation costs from trucking merchandise from their distribution centers to their stores, due to increasing fuel prices. And while American consumers may be flocking to the big discount chain stores for their shopping, they are also going to face their own increased costs of energy through gas prices at the pump, and potentially increasing food prices. So American consumers may end up spending less money at Wal-Mart by purchasing only the basic merchandise that they may need. And that will certainly cut into Wal-Mart's profit margins as the company slashes prices in order to lure customers in.

I'm thinking this recession will be a bad one for the U.S. economy.