Wal-Mart's gas threat
CEO Lee Scott says rising gas and utility prices will impact customers "around the world." Cautious about the second quarter.
NEW YORK (CNNMoney.com) - Wal-Mart signaled Tuesday that it's clearly worried that higher gas prices could both eat into its sales in the months ahead and add to the overall cost of running its business.
In a pre-recorded call to discuss the Wal-Mart's (Research) first-quarter results, CEO Lee Scott said the company could "continue to see higher utility costs impact customers around the world" and pressure [results] in the second quarter.
Moreover, Wal-Mart said higher energy costs will likely pressure the backend of its business in the form of higher operating expenses and transportation costs.
Industry experts have warned that low-to-mid-income consumers - Wal-Mart's core shoppers - first feel the pinch from rising gas prices, ultimately cutting back on trips to the store and spending less once they get there.
Wal-Mart typically is perceived to be a good barometer of the health of the consumer given its status as the world's largest retailer, averaging more than 100 million customers a week to it stores.
While Wal-Mart's remarks are a cause for concern, some industry watchers say they don't necessarily signal a broad-based slowdown in consumer spending.
"It's obvious that higher gas prices will disproportionately impact more of Wal-Mart's customers than say Nordstrom (Research) shoppers," said Nariman Behravesh, chief economist for research firm Global Insight. "Consumer spending will moderate somewhat because of energy costs as we get further into the year but not to the point that it will mark the beginning of a recession."
However, if other retailers that cater to consumers further up the income ladder start to bellyache about gas pressure on their sales, that could potentially escalate the level of concern about consumer spending, he added.
And any long-term pullback in consumer spending doesn't bode well for the broader economy since consumer purchases fuel two-thirds of the economy.
Summer spending sapped by fuel costs?
The latest results of a consumer spending survey from market research firm America's Research Group (ARG) appeared to validate Wal-Mart's worries.
The survey of 1,000 consumers conducted between May 5 and May 9 showed that one-half of those polled plan to reduce personal and family spending due to higher gas prices while almost a quarter said that they will definitely spend much less this summer.
Moreover, 46 percent of families polled said they will change their vacation plans if gas prices remain above $3 a gallon.
"Higher gas prices, rising prices at their local supermarket and feeling the pinch of credit card debt are taking their toll on American families," Britt Beemer, retail analyst and CEO of ARG, said in the report.
Consumer confidence in employment is also on the wane, Beemer said, citing the fact that only 28 percent of people polled said they still feel "very confident" about getting a job in April, down from 36 percent in February.
UBS economist Jim O'Sullivan said the drop in consumer confidence numbers in early May coincided with other macro-economic headwinds for consumers such as slowing home prices and refinancing activity.
"There are pluses and minuses working together for the consumer right now," he said. "On the minuses you have higher energy costs, rising interest rates and slow home activity. On the pluses, consumer spending has held up well, income growth is up a bit, tax receipts are strong."
"The key is the labor market. If the labor market weakens, the minuses will outweigh the pluses. I think the labor market will slow leading to some softness in overall spending ahead," O'Sullivan said.
Wal-Mart beats but cautious
Wal-Mart's news was a mix of sweet and sour. The retailer posted first-quarter earnings that beat Wall Street estimates, helped by higher sales and reduction in inventory.
Scott said the "success" of this quarter was the result of three efforts -- driving sales, lowering costs and broadening the appeal of the merchandise mix to attract more upscale shoppers and boost profits by selling higher-margin goods.
Same-store sales -- or sales at stores open at least a year -- grew 3.8 percent in the quarter for Wal-Mart stores and a faster 4.3 percent at the company's Sam's Club warehouse division. But the company said it saw April sales weaken by the end of the month as gas prices took a toll on its customers.
For the second quarter, Wal-Mart expects to earn between 70 cents and 74 cents a share and between $2.88 and $2.95 a share for the full year. That compares with analysts' consensus estimate of 74 cents a share for the quarter and $2.93 a share for the year, according to First Call.
Same-store sales are forecast to grow between 2 to 4 percent, the company said.
April retail sales weaker than expected. Click here for more.
Rising gasoline = Trouble for retailers. Click here for more.
For more news on the economy, click here.