Wall Street Journal
By Miguel Bustillo
Americans living paycheck to paycheck are looking at the gas gauge before they run their errands, and that's hurting big retail chains such as Wal-Mart Stores Inc. and Lowe's Cos.
"Our customers are consolidating trips due to higher gas prices," said Wal-Mart U.S. head Bill Simon during the retailer's earnings conference call Tuesday. "One in five Wal-Mart moms list gasoline as a top expense behind housing and car payments."
Reflecting those concerns about the cost of driving, customer visits to Wal-Mart are down—and that's hurting sales. Wal-Mart on Tuesday reported its eighth consecutive quarter of sales declines at U.S. stores open at least a year.
"Despite improvements in some areas of the economy, core Wal-Mart U.S. customers are still stretched," Wal-Mart Chief Executive Mike Duke said. "They remain concerned about rising prices for gas, energy and food, as well as employment issues."
Store chains and retail experts say the prices are having a broad emotional impact that is altering shopping patterns even for those who can afford to fuel up, a shift that's benefiting online retailers.
Lowe's said it sees a shift due to gasoline prices. "We do believe it has affected traffic going to stores. And some people are staying home and ordering more" online, Lowe's Chief Executive Robert Niblock said in an interview.
In the U.S., online sales in April jumped 19% compared to the year before, according to a research arm of MasterCard Inc. that measures U.S. retail activity based on credit card and other transactions. "It is really the gasoline story," said Michael McNamara, vice president of research for MasterCard Advisors SpendingPulse. "We are seeing fewer trips to retail locations, and a benefit to online sales."
The price of gas has remained close to $4 a gallon in May. The national average was $3.94 Tuesday morning, according to the automotive group AAA, up substantially from $2.87 a year ago.
Wal-Mart posted a $3.4 billion profit Tuesday, up 3.8% over last year, thanks to surging 11.5% sales growth in the company's international division and the resurgence of its Sam's Club warehouse chain. But the Bentonville, Ark, chain warned that its U.S. sales could continue to suffer during the second quarter, due in part to gas prices, which it cited as a reason for a drop in first-quarter store visits compared to the year before.
Overall revenue for the first quarter ended April 30 rose 4.4% from a year earlier to $103.4 billion, or 98 cents a share. Results included a benefit of about a penny per share from favorable foreign currency exchange. Same-store sales in the U.S. slipped 1.1%.
Lowe's, the world's second largest home improvement chain, on Monday reported a 3.3% drop in sales at stores open at least a year. It also lowered its profit forecasts for the full year, saying fuel-price uncertainty clouded its sales picture.
"That is kind of the wild card: Do the gas prices pull back?" Mr. Niblock said. "It is unlikely that they pull back much further given that we are heading into the peak summer driving season."
To be sure, some chains that sell low-priced fuel and offer one-stop shoping, such as Costco Wholesale Corp., are reporting strong traffic and sales.
And not all the sales problems befalling Wal-Mart and home improvement chains are due to gasoline. Wal-Mart is struggling to undo the damage from a decision to redesign U.S. namesake stores that backfired with core customers, while Lowe's and Home Depot Inc. primarily suffered from unusually wet and cold weather that put a damper on spring gardening season.
Home Depot, the world's largest home improvement chain, reported a less substantial 0.6% drop in sales at stores open at least a year Tuesday, and notched a 12% jump in profit, largely thanks to merchandise adjustments and cost reductions in its recently modernized supply chain.
"It's a weather story," Home Depot Chief Financial Officer Carol Tomé said in an interview, downplaying the impact of gasoline prices compared to the cold and wet, which caused customers to hold off on painting homes and other outdoor tasks. "We feel it is too early to tell what kind of impact fuel prices are having on our business."
