Gas Prices Slow Wal-Mart Express

By Don Hogsett -- Home Textiles Today, 5/16/2005 12:00:00 AM

Bentonville, Ark. — —

Bentonville, Ark. —With rising gas prices putting the squeeze on lower-income consumers, Wal-Mart Stores Inc. missed its first quarter sales and earnings targets, and hoisted a yellow caution flag, warning Wall Street and investors it will come up short in the second quarter, and possibly all of this year.

The news triggered a modest sell-off in shares of the world's largest retailer, with Wal-Mart stock slipping 2.4 percent, or $1.17 a share, to $47.43 in unusually heavy mid-day trading on the New York Stock Exchange after the news came out.

Wal-Mart profits came in at $2.5 billion during the quarter, up 13.6 percent from $2.2 billion last year — but only because of a $145 million after-tax windfall stemming from the favorable settlement of tax and legal issues. Pull that one-time gain out of the equation, and Wal-Mart profits were up a slender 6.9 percent, way off the company's usually strong double-digit pace.

Wal-Mart sales improved 9.5 percent, to $70.9 billion from $64.8 billion last year, helped by continued expansion. Same-store sales rose 2.8 percent, with the Sam's warehouse operation continuing to outperform the core Wal-Mart Stores business.

Sam's comps rose 3.5 percent versus a 2.8 percent gain for the discount stores.

With cash-strapped consumers holding on tight to their wallets, costs climbed as a percentage of sales during the opening quarter, offsetting modest margin improvement. SG&A expenses edged up 30 basis points, or three-tenths of a percentage point, to 18.6 percent from 18.3 percent, canceling out slightly wider margins. Average gross margin expanded 20 basis points, or two-tenths of a percentage point, to 23 percent from 22.8 percent.

Putting further pressure on the bottom line, stockpiles climbed as sales slacked off. Inventories rose 10.7 percent, to $31.3 billion, rising faster than the 9.5 percent increase in sales.

Wal-Mart Stores Inc.