Tuesday, August 16, 2005
Target-Envy and Inflation in Our Time
Wal-Mart’s earnings call just ended, and, as usual, it contained an interesting—although too brief—snapshot of the world’s economies and some insight into the rising cost of doing business at the world’s largest retailer.
In the U.S., “summer did arrive” after an unusually cool and wet spring dampened sales. Germany is weak, as is the U.K. But China sales were up 20% and operating profit there was above plan and the company sounded very optimistic about new store openings there.
Interestingly enough, Wal-Mart in the U.S. is making an effort to attract more customers in Target’s middle-to-upper economic space, noting a large push into digital televisions. After a year or two of sub-par comp-store sales, Wal-Mart is clearly suffering “Target-envy”—a highly unusual turn of events for long-time retail watchers such as myself.
The culprit appears to be Wal-Mart’s lower-income customer and the toll higher oil prices are taking: energy “impacts an important portion of our customer base,” as the company noted several times on the call.
Energy also (somebody should tell the economists who subtract energy from the various price indices) hurts Wal-Mart itself: total utility costs “were up $100 million in the quarter,” while “the cost to move freight from our distribution centers to our stores” jumped $30 million in the quarter.
Bad for Wal-Mart? Not particularly, given that it’s spread over a quarter-trillion in sales.
But it sure makes things tougher on the little guys.
I Am Not Making This Up
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.
Posted by Jeff Matthews at 8:29 AM