Updated from 8:36 a.m. EDT

Lousy earnings and worse guidance from

Wal-Mart

(WMT) - Get Report

Thursday had Wall Street wondering if it has overestimated the health of less-affluent U.S. consumers.

Better results at

Target

(TGT) - Get Report

and a blowout government report on April retail sales, however, propped up the other side of the argument.

Wal-Mart earned $2.5 billion, 58 cents a share, in the first quarter ended April 30, compared with $2.2 billion, or 50 cents a share, last year. Sales rose 9.5% from a year ago to $71.7 billion. Adjusted for items, Wal-Mart earned 55 cents a share in the most recent quarter.

Analysts had been forecasting adjusted earnings of 56 cents a share on sales of $72 billion.

"This is a surprising slowdown here and it's tough to say at this point whether it's Wal-Mart-specific or if it's a leading indicator of consumer spending," said Joseph Beaulieu, a retail analyst with Morningstar. "I always get a little worried when I hear companies blaming earnings misses on gas prices or weather, and Wal-Mart is doing both. Then again, it does seem logical that gas prices at these levels are eating into the low-end consumer to some extent."

On a conference call, Wal-Mart pegged second-quarter earnings at 63 cents to 67 cents a share, well short of the consensus analyst estimate of 70 cents a share. Executives said the first-half shortfall will make it harder, although not impossible, to reach its full-year guidance of $2.70 to $2.74 a share.

The stock is down $1.87, or 3.8%, to $46.73.

Wal-Mart's results are the latest chapter in an ongoing debate about how poorer Americans will respond to catalysts including higher gasoline prices and rising interest rates. Analysts have been pricing in an almost inevitable slowdown in its growth rate, with 2005 earnings expected to rise 13% after 2004's blistering 19% rate.

Some of the difficulty hadbeen previewed in same-store sales results, which rose 4.1% in February and 4.8% in March before stagnating in April. The shares were down 7% heading into Thursday, recently touching a 52-week low of $46.20.

In the first quarter, Wal-Mart's total U.S. same-store sales rose 2.9% from a year ago, reflecting a 2.8% increase at its flagship Wal-Mart Stores division and a 3.5% gain at Sam's Club.

"We achieved record results in the quarter," CEO Lee Scott said in a release. "Yet with higher gasoline prices and a cooler and wetter spring than normal, we missed our plan. We are making the necessary adjustments and I anticipate better results in the second half of the year."

Meanwhile, Target said first-quarter income rose to $494 million, or 55 cents a share, from $392 million, or 43 cents a share, last year. Analysts were expecting 54 cents a share. Sales rose 13% from a year ago to $11.17 billion, slightly below the $11.4 billion consensus.

And the goverment said overall retail sales rose 1.4% in April, or 1.1% excluding autos. Both numbers were roughly double the Wall Street consensus.

"This other data does suggest that some of Wal-Mart's troubles are related to execution troubles," Beaulieu said. "Target is just doing a great job. Wal-Mart, meanwhile, is a complex company that's not easy to manage. There's probably some quarter-specific factors going into this miss as well as some Wal-Mart-specific stuff and some consumer-specific stuff. They're all combining to weigh on Wal-Mart."

Scott expressed optimism about the future of the economy on the company's conference call, saying he saw improvements in the labor market.

"We will face another challenging quarter, but we should pick up momentum into the second half of the year," Scott said. "The biggest unknown is the impact of gasoline prices on our customer-base.