BENTONVILLE, Ark. -- As retailers in various channels made quarterly result announcements this week, many from big boxes to home improvement stores to restaurants that didn't achieve their goals pointed their fingers squarely at gasoline prices.
Wal-Mart Stores Inc., the biggest U.S. retailer, posted its first drop in net income in a decade, and No. 2 Home Depot Inc.'s profit growth hit a three-year low as rising gasoline prices hurt consumer spending, according to a Bloomberg News report.
Second-quarter earnings at [image-nocss] Wal-Mart fell 26% after the company agreed to sell its German retail chain and U.S. sales growth slowed. Home Depot's profit increased 5.3%. Both reduced prices in the quarter and forecast earnings at the low end of analysts' estimates.
Wal-Mart was quite honestly disappointed with sales performance in our U.S. stores, CEO H. Lee Scott said on the company's earnings call, according to Bloomberg. Customers tell us that they are most concerned about gas prices.
Gasoline in the U.S. averaged $2.92 a gallon in the second quarter, according to the Department of Energy, up 33% from a year earlier. Wal-Mart's customers, with average annual household incomes of less than $40,000, are especially hurt by fuel costs. Home Depot CEO Robert Nardelli said gasoline prices and higher interest rates put pressure on the consumer.
Their consumer is living on the edge, Howard Davidowitz, chairman of retail consultant Davidowitz & Associates Inc., told Bloomberg. They've got negative savings and they're spending just when they get their paychecks. They have no cushion.
Meanwhile, with high energy costs taking a bite out of consumers' wallets, the restaurant industry is feeling the pinch, as well, according to a report in the Boston Herald. The restaurant business nationwide is in the worst sales slump since the 1991 recession, according to a report by research firm CIBC World Markets, the Herald reported.
The study said same store sales among the big names in the casual-dining industry were at their lowest rate of growth since 1999 and less than half what they were year ago. The report says the industry has slowed to a rate equal to three previous downturns, in 1985, 1991 and 1999.
This time around, the consumer faces a more volatile mix: rising energy costs and interest rates have slowed personal consumption expenditures, the report says. That, coupled with ever-growing competition is making things tough.
Similarly, fast-food company Yum Brands Inc. on Wednesday said sales at its U.S. restaurants open at least a year fell 3% in the latest four-week period due to weakness in its Pizza Hut business.
In a statement, Yum said same-store sales fell 3% at Taco Bell, were unchanged at KFC and dropped 7% at Pizza Hut. Last month, Yum said it expected results for the latest period to be in line with the 3% drop it reported for the previous four weeks.
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