Wal-Mart Shares Fall on Weak Earnings Forecast

Wal-Mart Stores, the world's largest retailer, said Tuesday quarterly profit rose 7 percent, helped by bargain-hungry U.S. consumers looking for discounts on necessities like food and pharmacy items.

The results matched analyst estimates, but Wal-Mart shares were trading lower after it issued a cautious outlook.

Although the retailer said its performance was off to a "solid start," it provided a forecast for the second quarter that was weaker than Wall Street analysts were expecting. Wal-Mart said it faces a tough economic environment, amid higher gasoline costs and with customers who are running out of money between paychecks.

"I think, overall, the numbers are good numbers...it was all about managing the expense ratio; it was up less than expected," said Dana Telsey, chief research officer at Telsey Advisory Group. "When you look at the divisional breakout, the Wal-Mart Stores division is 60 percent of the total. It was the only division where operating income growth exceeded sales growth."

Telsey expects Wal-Mart to continue to gain market share against its rivals for as long as gasoline stays at $4.00 a gallon or a little bit higher.

In the quarter ended April 30, Wal-Mart's net income rose to $3.02 billion, or 76 cents a share, from $2.83 billion, or 68 cents per share, a year earlier.

Seeking Low Prices

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.

In the quarter, net sales rose 10 percent to $94.12 billion. Sales at U.S. stores open at least a year, a key retail gauge known as same-store sales, rose 2.9 percent.

Sales rose almost 7 percent to $59.07 billion from $55.44 billion at the namesake Wal-Mart stores and increased to $11.11 billion from $10.32 billion at the Sam's Club warehouse division.

International sales jumped 22 percent to $23.94 billion.

America's Research Group, which tracks consumer behavior, said there had been an increase in the number of U.S. consumers who did not previously shop at Wal-Mart, but are now going to its stores for basic items like paper towels and over-the-counter medicine.

About one-third of the people who had never shopped at Wal-Mart are now going there once or twice a month, Chairman Britt Beemer said Monday.

Uncertain Year

On the call, Chief Executive Lee Scott said the rest of the year remained uncertain.

While there may be a "short-term" impact from tax rebates being sent to U.S. consumers, he said it was difficult to quantify what effect the money could have on sales.

The rebates are part of Washington's $152 billion 2008 economic stimulus package, and about 130 million households are receiving some $100 billion in cash to spend.

To entice shoppers to spend the rebates in its stores, Wal-Mart is offering to cash the checks and cutting prices on staple goods such as cereal and lunch meat.

Executives also said that higher transportation costs would remain a "potential headwind" for the rest of the year.

For the second-quarter, Wal-Mart forecast earnings per share of 78 cents to 81 cents. Analysts on average are expecting 81 cents.

--Reuters contributed to this story.

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