Food, gas mean profits for discount warehouses


Blogging Biz

June 01, 2008|By Jay Hancock

No surprise that discounters such as Wal-Mart and Costco are booking higher sales. The stuff they sell - food and gas - is getting much more expensive, which swells the top line of the income statement.

What's impressive is that they're also increasing the bottom line, although how long that can continue is an open question. A weak economy is driving more shoppers to seek low prices, which has helped increase discounters' sales growth beyond the inflation rate and compensated for their higher costs.

Two weeks ago, Wal-Mart reported a 7 percent profit increase in the first three months of the year to go along with a 10 percent increase in sales.

Last week, Costco beat Wall Street's estimates by booking a 32 percent increase in first-quarter profit and a 13 percent sales increase.

Revenue from food, which makes up 60 percent of Costco's sales, and gasoline, which makes up 10 percent, was robust, the company said. But sales of discretionary items such as jewelry and electronics were weak.

Rising wholesale and manufacturing prices threaten profits for all retailers, and discounters are no exception.

This year through April, so-called "producer" prices have been rising at about three times the rate of retail prices. Last week, Dow Chemical, whose products are used in all kinds of consumer goods, said it would raise prices by as much as 20 percent.

That kind of surge will hurt consumers and retailers alike. Even with heavy store traffic, there is a limit to how much discounters can match expensive wholesale costs with higher prices of their own.


For Jay Hancock's take on local business news that affects you, read him daily at

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.