NEW YORK (CNN/Money) - While Wal-Mart Stores blamed higher gas prices for cutting into its sales in the second quarter, CEO Lee Scott said Tuesday he's concerned that the worst may be yet to come. <br /><br />"I do feel good about the economy, but I worry about the effect of higher oil prices," Scott said during the pre-recorded call that was monitored by telephone in New York. "Wal-Mart will continue to face a challenge as the year progresses." <br /><br />Wal-Mart (Research) stock was down over two percent in early morning trading on the New York Stock Exchange. <br /><br />Tom Schoewe, Wal-Mart's chief financial officer, chimed in during the call, adding that Wal-Mart was hit with a double-whammy because of the escalating price of fuel. <br /><br />On one hand, higher gas prices will continue to cut into the pocketbooks of Wal-Mart's predominantly low-to-mid-income customers. <br /><br />"That will impact our operating income," Schoewe said. <br /><br />Wal-Mart maintains that it averages about 100 million customers a week to its stores, making the retailer a good barometer of the mood of the consumer. <br /><br />At the same time, Schoewe said more expensive fuel was costing Wal-Mart more on the back end of the business, primarily to use its vast trucking fleet to move freight around the country to its stores. <br /><br />"This impacted our operating profit by $30 million and our total utility expense rose by $100 million in the quarter," Schoewe said. <br /><br />Because of the "uncertainty" of the direction of oil prices, Schoewe said Wal-Mart was keeping its third-quarter and full-year profit forecasts within a "wide range." <br /><br />Wal-Mart (Research) expects third-quarter earnings to come in at 55 to 59 cents a share. That's below the top end of analysts' range of 57 to 62 cents a share for the period. Sales at its stores open at least a year-- a key retail measure known as same-store sales -- were expected to rise between 3 to 5 percent for the period. <br /><br />Full-year profits are expected to be $2.63 to $2.70 a share, compared with analysts' forecasted range of $2.56 to $2.70 a share for the period ending Jan. 31, 2006. <br /><br />"Right now, the middle of the range seems reasonable," Schoewe said. <br /><br />The consensus analysts' estimate for the third quarter is for a profit of 60 cents a share for the third quarter and $2.66 for the full year, according to First Call. <br /><br />Wal-Mart is also struggling with keeping its expenses down, Scott said. <br /><br />"We did not meet our goals as our expenses in the quarter grew faster than our sales," Scott said. "Our inventory grew less than last year even as sales increased." <br /><br />These two factors will increase financial costs for the company, although Scott said he was confident that any negative impact of that would be offset by higher gross margins. <br /><br />On a positive note, Scott said inflation appeared under check as Wal-Mart customers paid about the same amount of dollars for the same basket of goods compared to last year. <br /><br />Sluggish sales<br />Wal-Mart (Research), the world's largest retailer, said it earned a record $2.8 billion, or 67 cents a share for the period ended July 31, up 5.8 percent from $2.7 billion, or 62 cents, in the prior year. Sales for the period came in at $76.8 billion, up 10.2 percent. <br /><br />Analysts had expected the company to earn a profit of 65 cents a share for the period on sales of $77.4 billion, according to First Call. <br /><br />"Early in the quarter, our results were disappointing," Scott said. "However, July came in stronger than expected. Wal-Mart Stores did miss their plan as our customer continues to be impacted by higher gas prices, and it is difficult to improve our expense leverage in the current environment." <br /><br />However, hot and steamy weather pushed sales of bigger-ticket items such as air conditioners, helping to boost Wal-Mart's bottom line. <br /><br />Scott said he "felt good" about back-to-school sales. In its ongoing bid to attract higher-income consumers and compete more effectively with rival Target (Research) which has been outpacing Wal-Mart in same-store sales growth, Scott said Wal-Mart was continuing to push for more depth in its mid- and premium-priced products, particularly in consumer electronics. <br /><br />Total U.S. comparable sales for the quarter increased 3.5 percent, which is represented by a 3.6 percent increase for Wal-Mart Stores and a 2.9 percent increase for Sam's Club.
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