No. 1 retailer lowers outlook

Wal-Mart's Aug. sales are hurt by hurricane, slow school demand

Charley affects 200 locations

Gain was 5.6% earlier in year

2.7% in June, July

August 24, 2004|By BLOOMBERG NEWS

BENTONVILLE, Ark. - Wal-Mart Stores Inc. cut its August sales forecast yesterday because of Hurricane Charley and sluggish demand for back-to-school products.

The world's largest retailer said U.S. sales will be little changed or increase by as much as 2 percent, which would be the smallest gain in 17 months.

Sales at 200 locations were hurt when Hurricane Charley hit Florida on Aug. 13, Wal-Mart said in a recorded phone message.

Slowing sales at Wal-Mart, which accounts for 5.5 percent of U.S. retail revenue, may indicate consumers are trimming spending in general, said analyst Eric Jemetz of Rockefeller & Co., a New York investment house with Wal-Mart shares among its $4 billion in assets.

Wal-Mart is relying on demand for school items after sales gains slowed from an average 5.6 percent in the first five months of the year to 2.7 percent in June and July amid higher gasoline prices.

"Your average American consumer is not as robust as Wal-Mart thought they would be two months ago," Jemetz said. "Customers are being more cautious, especially at lower-income levels."

He dismissed the impact of the hurricane, which forced 75 Wal-Mart stores to close for about three days, on back-to-school demand.

"The weather may postpone the purchase, it won't eliminate it," Jemetz said. Wal-Mart has about 3,055 stores.

Shares of Wal-Mart fell 85 cents to close at $53.80 yesterday on the New York Stock Exchange. They had risen 3 percent this year.

The discount chain previously had forecast that its August sales would increase by up to 4 percent.

Second-quarter sales gains were limited because of gasoline prices and a lack of new tax cuts, which spurred spending in last year's second quarter, Wal-Mart chief executive H. Lee Scott said in a recorded call this month.

Wal-Mart's sales are twice as sensitive to higher gasoline prices than the overall industry's sales because the retailer's customer base includes many lower-income families, said Michael Niemira, chief economist of the International Council of Shopping Centers.

The median family income for the average Wal-Mart shopper is about $44,000 a year, compared with about $55,000 for customers of the No. 2 U.S. discount chain, Target Corp., said Howard Davidowitz, chairman of consulting firm Davidowitz & Associates in New York.

The average price of regular gasoline reached a record $2.10 a gallon May 24 before declining gradually to $1.88 for the week of Aug. 16. In December 2001, just after the most recent recession, gasoline averaged $1.10 a gallon.

Job growth slowed in June and July. The economy created an average of 55,000 jobs during the two months compared with 225,000 a month from January through May, Labor Department figures show.

Wal-Mart said uniforms and athletic shoes were among back-to-school products with strong sales. Sharon Weber, a spokeswoman for the chain, declined to provide more details.

"Wal-Mart's problem is they have to get their apparel strategy stronger for the whole kids category," said Britt Beemer, chairman of America's Research Group, a Charleston, S.C., market research group.

"Weakness in apparel has probably hurt them and is really now coming to surface more than it has in the past."

August sales will be crimped by Labor Day falling later this year, on Sept. 6, Wal-Mart said.

The retailer forecast third-quarter profit from continuing operations of 52 cents to 54 cents as sales at stores opened at least a year rise as much as 5 percent.

Wal-Mart had U.S. sales of $208.8 billion in 2003, or 5.5 percent of the country's total retail sales of $3.78 trillion.

It's America's largest private employer, with 1.2 million U.S. workers, and the biggest seller of toys, groceries and diamonds, among other products.

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