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March 3, 2016, 4:13 p.m. EST

Low gas prices are good for consumers, less so for Costco & Kroger

Should Wal-Mart rethink plans to operate its own gas stations?

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By Tonya Garcia, MarketWatch


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Consumers have benefited from low gas prices, but companies have seen their numbers decline.

Consumers may be benefiting from lower gas prices, but both Costco Wholesale Corp. and The Kroger Co. said fuel wasn’t a healthy contributor to quarterly earnings, which might give Wal-Mart Stores Inc. reason to think twice about its plans to sell its own gas.

“For the quarter, sales [were] negatively impacted by gasoline price deflation to the tune of 80 basis points,” said Richard Galanti, chief financial officer at Costco /quotes/zigman/67728/composite COST +1.98%  , on Thursday’s earnings call. A basis point is equal to 0.01%.

Costco reported sales totaling $27.57 billion for the quarter ending Feb. 14, up from $26.87 billion for the same period last year, but below the FactSet consensus of $28.52 billion.

Costco shares closed down 0.8% in Thursday trading.

See also: Costco’s second quarter profit slides 8.7%

The average gas price at the beginning of the year was less than $2 per gallon, the lowest since 2009, according to the AAA. The organization expects an average annual price between $2.25 and $2.45 per gallon for the year.

Oil prices inched higher Thursday, with West Texas Intermediate crude rising above $35 per barrel.

See also: Oil tops $35 as traders weigh prospects for an output impact

Wal-Mart /quotes/zigman/245476/composite WMT +1.15%   announced plans to run its own gas stations in February, scaling back its relationship with Murphy USA Inc. /quotes/zigman/20509549/composite MUSA +0.30%  , which is the largest seller of gasoline in front of U.S. Wal-Mart stores. Wal-Mart will run its own gas stations in front of as many new stores as possible, according to Randy Hargrove, a company spokesperson.

See also: Wal-Mart to operate its own gas stations

“The shift is a sign that Wal-Mart CEO Doug McMillon is pushing to eke out profit from every corner as the retailer pours billions into boosting e-commerce sales to fend off Amazon.com Inc. and improve slow sales growth at stores, in part by raising minimum wages for hourly employees in an effort to improve customer service,” said The Wall Street Journal.

In addition to selling gas, Wal-Mart is likely hoping to gain from sales of other items that consumers also purchase while they’re filling up their tanks.

“[C]heaper gasoline leaves more cash in drivers’ pockets to buy cigarettes, snacks and other high-margin merchandise,” the Journal wrote.

Those purchases would have to offset any declines that could still be in store for gas sales. Costco also saw gas-related declines for the month of February.

“The average sale price year-over-year in gas was down 21% for the month, which is a bigger decline year-over-year than we saw in the quarter overall,” Galanti said.

/quotes/zigman/67728/composite
US : U.S.: Nasdaq
$ 160.24
+3.11 +1.98%
Volume: 4.51M
June 26, 2017 1:28p
P/E Ratio
27.78
Dividend Yield
1.25%
Market Cap
$68.92 billion
Rev. per Employee
$565,527
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/quotes/zigman/245476/composite
US : U.S.: NYSE
$ 75.70
+0.86 +1.15%
Volume: 4.40M
June 26, 2017 1:28p
P/E Ratio
17.16
Dividend Yield
2.70%
Market Cap
$225.61 billion
Rev. per Employee
$211,691
loading...
/quotes/zigman/20509549/composite
US : U.S.: NYSE
$ 72.84
+0.22 +0.30%
Volume: 91,812
June 26, 2017 1:28p
P/E Ratio
21.47
Dividend Yield
N/A
Market Cap
$2.67 billion
Rev. per Employee
$1.33M
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