Wal-Mart CFO: Suppliers pushing for price hikes
NEW YORK (Reuters) - Wal-Mart Stores Inc (WMT.N) is determined to maintain its low prices and its margins despite growing pressure from suppliers seeking price increases, its chief financial officer said on Thursday.
"The level of requests that we're getting right now for price increases is at the highest level that I can remember," said Tom Schoewe, who joined Wal-Mart in 2000, in an interview.
Wal-Mart is notorious for balking at raising the prices it charges shoppers in its stores. But as commodity prices hit record levels this year, suppliers that make the goods stocked by Wal-Mart have raised their prices to protect profits. In turn, Schoewe said Wal-Mart has increased some of the prices in its stores.
"We've had to pass along price increases as we've received them," Schoewe told Reuters. "But what's most important is the gap in price between us and our competitors, whether that's Target (TGT.N) or Costco (COST.O) or others."
On Thursday, the world's largest retailer reported a higher-than-expected 17 percent jump in profit but forecast current quarter results that could miss Wall Street estimates as a boost from U.S. tax rebate checks subsides.
Wal-Mart is also cutting back selectively on prices in areas where consumers are feeling the biggest strain on their wallets.
Eduardo Castro-Wright, head of Wal-Mart's U.S. operations, said on a recorded call that overall food inflation is running at the mid-single-digit percent level as prices for meat, produce, dairy and bakery items rise.
In response, Wal-Mart has increased the number of "roll-backs" or price cuts in its grocery business, he said.
MORE STRATEGIC PRICE CUTS
While such cuts can hurt margins, Schoewe said Wal-Mart is committed to keeping prices low and protecting margins.
"What you'd like to do with a roll-back is pick an item that might have a margin that's higher than the category average," he said. "By taking that price down, hopefully you're going to be selling more volume, more units and driving more gross profit dollars.
"As long as that happens, we feel like we're doing a good job for our shareholder by generating more earnings and doing a good job for our customer by providing them a great value."
Schoewe also said the current back-to-school season is going "reasonably well." Demand for back-to-college items is outpacing demand for merchandise for students in kindergarten through 12th grade.
"The spending around that event seems to happen closer and closer to the event itself," he said. "If you consider that back-to-school is a July and August phenomenon, our results in August are dependent on a successful back-to-school campaign."
But Schoewe said the retailer is being "appropriately conservative" in its outlook for its current third quarter. Continued...
