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May 18, 2010
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Wal-Mart beats Street but warns on outlook

By
Reuters
Published
May 18, 2010

(Reuters) - Wal-Mart Stores Inc (WMT.N) posted quarterly results that beat Wall Street expectations as a curb on costs helped the world's largest retailer overcome weaker U.S. same-store sales, sending shares up 2.4 percent.



Wal-Mart benefited during the U.S. recession as shoppers turned to its low prices on essentials. While it has seen that trend wane as consumers return to buying discretionary goods, like clothes, its shoppers remain under pressure from persistently high unemployment and their financial health.

"Our customers, particularly in the United States, are still concerned about their personal finances and unemployment, as well as higher fuel prices," Wal-Mart Chief Executive Mike Duke said in a statement. "Our commitment to reducing prices and managing expenses positions us well across the retail landscape."

Within minutes of reporting results, Wal-Mart also announced an onslaught of price cuts on groceries, offering an average discount of 30 percent for a basket of 22 top food and household products.

At the same time, the discount retailer forecast second-quarter earnings that could fall short of Wall Street estimates and said its same-store sales for the period could drop.

"For them to note another soft quarter of traffic is not something I wanted to hear," said Brian Sozzi, analyst at Wall Street Strategies. But he noted the company was able to come out ahead on profits through improved margins as it focuses on cutting costs.

Wal-Mart reported earnings of $3.32 billion, or 88 cents a share, for the fiscal first quarter ended April 30. That compares with $3.03 billion, or 77 cents a share, a year earlier and came in ahead of the 85 cents per share expected by analysts, according to Thomson Reuters I/B/E/S.

U.S. sales at discount stores open at least a year, a key measure of a retailer's business, fell 1.4 percent. Analysts on average had forecast a 0.6 percent drop as of Monday 17 May, according to Thomson Reuters. In February, Wal-Mart forecast those sales at down 1 percent to up 1 percent.

Wal-Mart's Asda unit in Britain also posted a drop in quarterly underlying sales for the first time in four years.

Wal-Mart said it expected second-quarter earnings per share of 93 cents to 98 cents from continuing operations. Analysts had predicted earnings of 98 cents per share.

The company sees U.S. same-store sales, excluding fuel, up 1 percent to down 2 percent in the second quarter.

Vice Chairman Eduardo Castro-Wright, head of Wal-Mart's U.S. division, said the company was seeing heavier competition on price and that customers were cutting back on store trips due to high fuel costs, estimated to have risen 41 percent from a year ago.

He also cited a strong correlation between same-store sales and unemployment levels.

"Stores in areas with the highest increase in unemployment are running approximately 200 basis points lower comps than those with the lowest," Wright said.

(Reporting by Brad Dorfman, editing by Michele Gershberg and Gerald E. McCormick, Dave Zimmerman)

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