Wal-Mart Profit Rises, But Second Quarter Could Fall Short

Wal-Mart Stores warned Tuesday that its profits in the current quarter could fall short of expectations after reporting an 8% gain in first-quarter earnings amid cost-cutting and strength in its warehouse clubs and international businesses. The company continued to struggle with its namesake discount business.

The tepid outlook from Wal-Mart -- considered a barometer for the retail industry -- could serve as a warning bell that rising gasoline prices and a weakening housing market will continue to eat away at consumer spending in the coming months. The announcement came as Home Depot Inc. reported a 29.5% drop in first-quarter profits on a slight increase in sales.

For its first quarter, Wal-Mart said it earned $2.83 billion, or 68 cents a share, compared with $2.62 billion, or 64 cents a share, in the previous year quarter.

Wal-Mart had revenue of $86.41 billion in the three months ending April 30, up from $79.67 billion in the year prior.

Analysts surveyed by Thomson Financial expected first-quarter earnings per share of 68 cents and revenues of $86.9 billion.

"Quite honestly, we're not satisfied with our overall performance," Wal-Mart President and Chief Executive Lee Scott said during a pre-recorded conference call.

Same-store sales rose 0.6% in the first quarter at Wal-Mart's U.S. stores, with its Sam's Club warehouse stores accounting for all of the gain.

Wal-Mart's namesake stores slipped 0.1% in the quarter, while Sam's Club warehouse stores rose 4.7%. Same-store sales ,or sales at stores opened at least a year, is a key gauge of retailer health because it measures growth at established locations open at least a year rather than at newly opened ones.

For the current quarter, Wal-Mart projected same-store sales to be up a modest 1% to 2%.

Scott said the company can perform better.

"You will see us be more committed than ever to price leadership," Scott said. Sales and profits for the quarter were "not where we would have expected to be nor where we believe we should be."

Bright spots include Sam's Club, which now has seven consecutive quarters in which profits grew faster than sales, Scott said.

Wal-Mart's international division, the fastest growing part of the company, accounted for 23% of sales for the quarter.

The company reacted to inflation in Mexico by lowering prices of tortillas and other staples, which Scott said was an investment in customer loyalty.

In Great Britain, Scott said Wal-Mart's Asda chain added 1.5 million customers since mid-2005, half in stores that were already open.

Wal-Mart said it expects second-quarter profits to be within a range of 75 cents to 79 cents per share. Analysts surveyed by Thomson Financial expect a consensus 79 cents per share for the period.