Wal-Mart’s Gas Pains

Wal-Mart Stores Inc. (Bentonville, Ark.) blamed high oil prices for its smallest quarterly profit growth in four years. The world’s largest retailer, which issued its second quarter sales and earnings report yesterday, warned that its third-quarter earnings would fall short of analyst estimates.

The company said that second-quarter earnings rose 5.8 percent in the quarter. Sales rose 10.2 percent, to $76.8 billion. Analysts were expecting revenue of $77.46 billion.

“Wal-Mart Stores did miss their plan as our customer continues to be impacted by higher gas prices and it is difficult to improve our expense leverage in the current environment,” said ceo Lee Scott. “I worry about the effect of higher oil prices.” Scott added that the impact could potentially “erase improvements in employment and real income for an important part of our customer base.”

One estimate is that Wal-Mart would have had to expand its sales by 12 percent to fully offset the impact of higher energy costs, which in addition to affecting customer spending have added to the company’s store overhead and transportation costs.

Wal-Mart cfo Thomas Schoewe said utility expenses rose $100 million and fuel costs were up $30 million in the quarter.

“Lower-income consumers are getting pressed more and more by high gas prices,” Joel Naroff, the chief economist at Naroff Economic Advisers (Holland, Pa.) told The New York Times. “It’s hard to give up driving, but people cut back here and there, and that will only worsen with higher oil prices.

“If you have to spend seven or eight dollars to drive to Wal-Mart, it had better be a big purchase,” he said, “otherwise the savings won’t be that great.”

Naroff also cited the concurrent impacts of high summer cooling bills and the Federal Reserve’s continued tightening of interest rates, which he said disproportionately hurt consumers who borrow using their credit cards. With its customers having grown accustomed to such consistently low prices, Wal-Mart could have a particularly hard time passing on the higher energy costs — both its own and those of its suppliers.

“Wal-Mart made a living jamming costs down on everyone else,” Naroff told The Times. “Now, how much can they absorb on their own?”