NEW YORK (Reuters) - Wal-Mart Stores Inc said on Tuesday that quarterly profit rose 7 percent as discounts drew in U.S. shoppers, but its shares fell after the world's largest retailer issued a cautious outlook for the current period.
By Nicole Maestri
NEW YORK (Reuters) - Wal-Mart Stores Inc said on Tuesday that quarterly profit rose 7 percent as discounts drew in U.S. shoppers, but its shares fell after the world's largest retailer issued a cautious outlook for the current period.
While Wal-Mart said the year was off to a "solid start," it indicated results for this quarter could miss Wall Street estimates as it faces a tough economic environment, higher transportation costs and customers who are running out of money between paychecks.
Wal-Mart shares, which through Monday were up 22 percent year to date, fell 1.2 percent in premarket trading.
!ADVERTISEMENT!"Customers are faced with results of a tougher economy, higher gas prices, food inflation and the increase in the overall cost of living," said Eduardo Castro-Wright, head of Wal-Mart's U.S. operations, on a recorded call.
"The 'paycheck cycle' is more pronounced as things get tighter for customers toward the end of the month," he added.
Net income rose to $3.02 billion, or 76 cents per share, in the first quarter ended on April 30, from $2.83 billion, or 68 cents per share, a year earlier.
The results matched analysts' average per-share forecast, according to Reuters Estimates.
Telsey Advisory Group analyst Joseph Feldman said it made sense for Wal-Mart to issue a conservative forecast given the uncertain environment. But he expects the discount retailer to outperform its peers in this climate.
"If anybody's going to execute and perform well and get share in this market, it's going to be Wal-Mart," he said.
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.
In the first 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 on Monday.
On the recorded call, Castro-Wright said U.S. customer traffic was "positive for the first time in a very long time."
Castro-Wright also said the retailer would continue to keep its inventory "very lean," helping to avoid costly markdowns and reduce "shrink" -- inventory lost to events like shoplifting or employee theft.
FULL-YEAR UNCERTAINTY
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.
Wal-Mart shares fell to $57.35 in trading before the market opened from Monday's New York Stock Exchange close of $58.02.
This year, the stock has substantially outperformed shares of smaller rival Target Corp, which are up almost 7 percent, and the Standard and Poor's Retail Index, which is down 1 percent.
(Editing by Lisa Von Ahn)
