Retailers Feel Pressure of Rising Consumer Prices

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Retailers Feel Pressure of Rising Consumer Prices

WASHINGTON, D.C. -- As energy costs rose around the nation in July, consumers prices increased as well. Energy prices rose 2.9 percent since June, and gasoline prices were up 5.3 percent. All this amounted for disappointing second quarter results for the top two U.S. retailers -- Wal-Mart and Home Depot.

The consumer price index rose .4 percent, after a .2 percent increase in June, according to the Labor Department. The overall consumer prices were 4.1 percent higher than last year.

The largest U.S. retailer, Wal-Mart, suffered from its first drop in net income in a decade, reported Bloomberg News. Second quarter earnings fell 26 percent and net income for that time dropped to $2.08 billion, the first time since the fourth quarter of 1996. Last year, the company reported $2.8 billion in net income for the second quarter. CEO for Wal-Mart, H. Lee Scott told Bloomberg News that the company was "quite honestly disappointed with sales performance in our U.S. stores."

Home Depot, the number two retailer, reported a three-year low in profit for the second quarter of 2006. Although net income increased from $1.77 billion to $1.86 billion, profit rose at the slowest pace since the fourth quarter in February 2003. Home Depot's CEO Robert Nardelli, expects a "challenging second half," of the 2006 fiscal year.

The slowed growth for Home Depot is attributed to a 5.7 percent decrease in construction for June, and a drop in demand for new homes by 11.1 percent over the past year. The National Association of Home Builders' August index for the sale of new homes was 32, the lowest since the economy was in a recession in 1991.

"Their consumer is living on the edge," Howard Davidowitz, chairman for Davidowitz & Associates, Inc., a retail consulting firm, told Bloomberg News. "They've got negative savings and they're spending just when they get their paychecks. They have no cushion."