Andrew, Pete, and I were bantering last week here at CG&G about what the increase in same store sales at Wal-Mart meant. Pete and I thought that, contrary to what others were saying, the increase was not a sign that consumer spending was on the rise, that the worst was not over, and that the increase was actually an indication that consumers were substituting less expensive goods for what they might have bought in the past. Andrew said the increase was not as impressive as some said it was and shouldn't be over-interpreted.

Not to be too self-congratulatory but...not only were were right, but we were right days before the rest of the market got wind to what was actually happening.

Wal-Mart today reported an increase in earnings and the interpretation of the results from he company was that it was mostly due to consumers looking for lower prices for basics. Here's the money quote from CNBC:

Consumers are seeking out Wal-Mart's low prices, especially for basic items like groceries, shampoo and cleaning supplies, as the U.S. economy falters and prices of food and fuel soar. The economic downturn comes as Wal-Mart has gotten back to the basics, trumpeting its low prices and slowing its aggressive expansion plans, to improve results at its existing U.S. stores. At the end of January, Wal-Mart slashed prices on thousands of items by up to 30 percent to win sales from cash-strapped U.S. shoppers.

When reporting the results, Wal-Mart's CEO Lee Scott confirmed that the downturn is helping the company's sales: "Our business is even more relevant to our customers today, given the current economic pressures."

Andrew correctly noted last week that Wal-Mart is not the bottom of the retail chain and that consumers could continue to look for even less expensive alternatives in the future. That creates an interesting analytical challenge: If Wal-Mart sales fall, will that be an indication things are getting better and consumers are shifting back to where they used to shop, or will it be a sign that things are getting worse and even Wal-Mart is too expensive? Or will consumers shopping at Wal-Mart for the first time stay there permanently because they like what they see and pay?