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Wal-Mart, Costco Profit From Recession

[May 13, 2008.]


Due to the recent economic recession, U.S. consumers have become more frugal. Their tendencies to try to save money have resulted in surprising profits for stores offering everyday commodities for discount and wholesale prices, such as Costco Wholesale and Wal-Mart.

Following a brief slump in 2007, Wal-mart's stock has gone up from around $45 a share at the beginning of 2008 to almost $60 a share in April of that year. The company's forecast for May sales is optimistic, yet cautious: Wal-mart expects sales to go up no more than 2%.

The company cautiously hopes that the tax rebates from the federal government's economic stimulus program will yield additional profits, in the form of customers spending the additional money to buy needed goods at bargain prices. Wal-mart announced earlier that customers wishing to cash their stimulus checks won't be charged.

Eduardo Castro-Wright, Wal-Mart's chief executive officer in the United States qualifies the company's statements of hope. "This early in the process, it's difficult to accurately forecast what impact the stimulus checks will have on consumer spending," he stated today.

Costco Wholesale has also experienced good fortune of late. Its financial analysts predicted same-store sales to go up by 6% this April; instead, they went up 8%. As the Costco offers consumer lower-cost gasoline, in addition to other low-cost everyday products, much of the profits--given today's record-breaking oil prices--come from gas sales. Not counting profits from gas, Costco's sales went up only 5%, still a considerable number.

Costco has issued a prepared statement to the press regarding their enviable financial situation. "We are… benefiting from some inflation on the food side as a result of the recent run-up in the cost of commodities and the… run-up in the price of oil and gasoline," said the wholesale giant.

Craig Johnson, a financial expert and head of Customer Growth Partners explained the situation. He state to Bloomberg News that Americans "know we're still in… uncertain times, so they want the most value for their dollar."


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