Reuters reports that Wal-Mart Stores, Inc. (NYSE: WMT) posted better-than-expected revenue growth in the first quarter. As I suggested last month, this makes sense to me because Wal-Mart is the beneficiary of the recession diet.
The details suggest that Wal-Mart is becoming more popular than analysts expected thanks to its low prices and the squeezed consumer. Specifically, Wal-Mart sales rose 3.2% rise in April boosted by demand for basic items like groceries and medicine. Analysts, on average, were expecting same-store sales to rise 2.1%, according to Reuters Estimates; Wal-Mart had forecast a gain of 1% to 3%.
Why is this happening? People need food, shelter, medicine, and gasoline to drive back and forth from their jobs. And the price of all those items is rising. I estimate that the median family takes in $838 a week after tax. If that family fills up two tanks of gas a week -- that amounts to 40 gallons times $3.62 a gallon or $145 a week. That's 17% of the weekly budget compared to 15% a year ago when gasoline was $3.10 a gallon. Food prices have skyrocketed as well with rice prices tripling this year.
Families are shunning stuff they no longer need such as vacations, new clothes, and going out to steak restaurants. And they're trying to make due on a squeezed budget. This trend will continue as gasoline goes to $6.67 a gallon. And Wal-Mart will profit from it.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
5-08-2008 @ 11:23AM
rowdy said...
Very good Peter,you are one of the few blogger writers that agreed with me concerning Wal-Mart coming out on top in the long run in the past. I hope the so called "X-PERT" analyst and writers quite jumping to conclusion so fast. I will stand by my faith in Wal-mart and continue it as my core holding.
RoudMan
5-08-2008 @ 11:32AM
uscyeahright said...
China Walmart will be all the middle class can afford when oil hits $200 in a month or so.
5-10-2008 @ 1:54PM
Mike said...
USCyeah right. Wal-Mart is based in Bentonville Arkansas. And although many of their goods are imported from China (and hundreds of other countries) they also source from the USA with brands you are familiar with such as Procter and Gamble, Coca Cola, Purina... you name it.
They are the ultimate American success story. A little Mom n' Pop discount store in the middle of nowhere Arkansas becomes the largest company in the world.
Times are tough. If someone wants to make the necessities of life a little less expensive i'm all for it. People with time to protest are those who don't need to be at work keeping food on the table.