Investors Shrug Off Wal-Mart Outlook

Wal-Mart posts 10% jump in first-quarter profit, but its outlook was tepid.
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(Wal-Mart story updated with additional analysis and comments from CFO.)NEW YORK (TheStreet) -- Wal-Mart (WMT) - Get Report posted a 10% jump in first-quarter profit but offered a cautious earnings picture for its second quarter.

Shares of the discount giant were rising 2.7%, or $1.43, to $54.16 in morning trading Tuesday, after it reported a profit of $3.32 billion, or 88 cents a share, better than the 84 cents that Wall Street had been predicting.

Sales climbed 6% to $99.1 billion from $93.47 billion, while U.S. same-store sales dropped 1.4%, as traffic continued to decline. It's the fourth consecutive quarter in which Wal-Mart saw a decrease in comparable sales. It's also the first quarter in which Puerto Rico was lumped in with U.S. sales.

CFO Thomas Schoewe placed most of the blame for the same-store sales decline on macro-economic factors like unemployment and rising prices at the pump.

"The areas with highest rate of unemployment also posted the lowest comps," he said. "The number of trips a customer is able to make to the store decreases as gas prices go up over 40%, which has been a major drag on traffic."

But a few internal factors also contributed to the company's soft sales during the period. Wal-Mart's move over the last three to six months to reduce brands and inventory levels backfired somewhat, as customers complained that it removed some of their favorite items.

Wal-Mart is currently in the process of bringing back some of those items to the shelves.

Discretionary categories, most notably apparel, were also a drag on results. Apparel was one of the biggest underperformers, Schoewe said. "We have a real big opportunity with the category, but haven't been doing what we should be."

But the drop domestically was offset by international sales, which surged 21%.

"Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices," CEO Mike Duke said in a statement.

Looking ahead, Wal-Mart forecasts second-quarter earnings in the range of 93 cents a share to 98 cents. Analysts were calling for a profit of 98 cents a share.

"Our guidance is based on our view of the global business. This includes the continuing challenging sales environment in the United States," Schoewe said in a statement.

Investors have been worried that Wal-Mart would be unable to hold onto more affluent customers that traded down to the discounter amid the recession. In the fourth-quarter, the company saw a traffic decline and reported its first drop in overall sales since going public in 1969.

In an effort to entice customers, Wal-Mart continued to slash prices and announced today even more cuts in its grocery segment. Schoewe said we should begin to see how successful these roll-backs are in the second quarter.

The company also said earlier in the week that it is expanding its electronics department, introducing 3-D televisions and other items.

Reported by Jeanine Poggi in New York.

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