JEREMY HOBSON: Now let’s get to the world’s largest retailer Wal-Mart — a company so big it is its own economic indicator. Wal-Mart said this morning that profits jumped almost 4 percent last quarter. But U.S. sales were down for the eighth straight quarter.
Juli Niemann is an analyst with Smith Moore and Company. She joins us live every Tuesday from St. Louis. Good morning Juli.
JULI NIEMANN: Good morning Jeremy.
HOBSON: So what do these Wal-Mart numbers tell you?
NIEMANN: Well, basically it says that in spite of efficiencies because they are the biggest we’re seeing here they’re not immune from rising costs. And that’s fuel and transportation. And even China who’s the biggest sources of product — costs are rising. They can’t squeeze the costs out much more. It hurts profit margins. And it’s the sheer size. They own the discount space in America. K-Mart doesn’t even count anymore. So mathematically, when you have a big percentage, you can’t rise significantly if you already own it. So you go for the small growth — whole sale and international.
HOBSON: And Juli, as you say Wal-Mart is a discount store. In that case, would falling sales in the U.S. mean that maybe the economy is getting better? People are moving up?
NIEMANN: Well, it’s better and worse. You know, you’ve got an income reversal here. Higher income is moving back up to Target, up Dillards, up to Saks. On the other hand, lower income is still moving lower and the Wal-Mart shopper has gone down to Family Dollar Store and the Dollar Tree. And that is continuing here. So their share the pie is actually getting smaller there and the dollars available for spending are significantly lower on the lower income side because of fuel costs. Middle income, the money is going to the gas tank, not into the shopping cart.
HOBSON: Juli Niemann, analyst at Smith Moore and Company, thanks so much.
NIEMANN: You bet.
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