Sorry I haven't been around much the last few days. I'm between semesters right now, so I've taken a mini-vacation away from blogging. However, I couldn't pass this one up.
NEW YORK (CNN/Money) - While Wal-Mart Stores blamed higher gas prices for cutting into its sales in the second quarter, CEO Lee Scott said Tuesday he's concerned that the worst may be yet to come."I do feel good about the economy, but I worry about the effect of higher oil prices," Scott said during the pre-recorded call that was monitored by telephone in New York. "Wal-Mart will continue to face a challenge as the year progresses."
Wal-Mart (Research) stock was down over three percent on the New York Stock Exchange.
Tom Schoewe, Wal-Mart's chief financial officer, chimed in during the call, adding that Wal-Mart was hit with a double-whammy because of the escalating price of fuel.
On one hand, higher gas prices will continue to cut into the pocketbooks of Wal-Mart's predominantly low-to-mid-income customers.
"That will impact our operating income," Schoewe said.
Wal-Mart maintains that it averages about 100 million customers a week to its stores, making the retailer a good barometer of the mood of the consumer.
At the same time, Schoewe said more expensive fuel was costing Wal-Mart more on the back end of the business, primarily to use its vast trucking fleet to move freight around the country to its stores.
"This impacted our operating profit by $30 million and our total utility expense rose by $100 million in the quarter," Schoewe said.
So to summaraize, Wal-Mart is blaming rising gas prices for their declining sales. Not only are the high gas prices cutting into family budgets, but their backend operations are suffering as well. Does anyone else spot the irony here?
More than any other company, Wal-Mart has increased the overall flow of cheap Chinese goods into this country. That in turn has enriched China and allowed them to go on a huge industrial binge. Therefore you get a higher demand for oil in China, pushing the overall price for crude through the roof. Thanks to that, Dick and Jane America can't buy enough knick knacks for their houses because it costs too much to fill up the family Hummer. Nasty circle, ain't it? I weep for Wal-Mart.
Yes, I do understand that a lack of refineries or disruptions to the supply line are to blame as well, but it's not a large part of the big picture. Chinese consumption is to blame for the rise in global oil prices...and concrete...and wood...etc...