Wal-Mart profits hit by surge in price of oil

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The Independent Online

The Wal-Mart retailing juggernaut showed further signs of difficulties yesterday as it posted its smallest quarterly profit gain in four years and gave a disappointing forecast for the current period.

The giant discount retailer said in recent weeks the exceptionally hot weather in the US had boosted sales of fans and other summer merchandise, helping earnings to come in at $2.8bn (£1.5bn), 6 per cent higher than last year. But it missed its goal of increasing profits faster than sales, which were up 10 per cent for the three months ending 31 July. Shares in Wal-Mart, the world's largest retailer, fell 3 per cent to $47.46 in morning trading in New York.

Wal-Mart, considered a barometer of consumer sentiment because it draws more than 100 million US customers each week, said it remained upbeat about the economy, but admitted the surge in the price of oil to $67 a barrel this month was a big concern.

"Inflation in the US appears to be well under control," Lee Scott, Wal-Mart's chief executive, said in a statement. "The only real economic concern I have is that oil prices will erase improvements in employment and real income for an important portion of our customer base."

The international division reported a 0.3 per cent gain in operating income, hurt by a $36m restructuring charge at Asda, the low-cost chain Wal-Mart owns in the UK.

Wal-Mart has cut hundreds of Asda headquarters jobs and added more employees in its stores in the hope of boosting sales. It said it was seeing improvement there.

Sales across its international business were up 12.3 per cent, helped in part by a strong Canadian dollar and Mexican peso. The retailer said it expects international profits to grow faster than sales by the third quarter. Mr Scott said: "Wal-Mart Stores did miss its plan as its customer continues to be impacted by higher gas prices." Ulysses Yannas, a broker at Buckman, Buckman & Reid, said: "This news shouldn't come as a surprise. They deal with the lowest income customers, on average." He estimated that Wal-Mart would have had to expand its sales by 12 per cent fully to offset the impact of higher energy costs, which have also added to the company's store and transportation costs.

Tom Schoewe, Wal-Mart's chief financial officer, said the company's utility expenses rose $100m, and fuel costs were up $30m in the quarter.