By  on May 16, 2007

Wal-Mart Stores Inc. on Tuesday posted first-quarter results in line with Wall Street's expectations and sounded a warning bell that rising gas prices might impact second-quarter results, which could fall below consensus estimates.

For the quarter ended April 30, net income rose 8.1 percent to $2.8 billion, or 68 cents a diluted share, from $2.6 billion, or 63 cents, in the same year-ago quarter. Total revenues rose 8.4 percent to $86.4 billion from $79.7 billion. Revenues included a sales gain of 8.3 percent to $85.4 billion from $78.8 billion. Sales at Wal-Mart Stores increased 5.6 percent to $55.4 billion from $52.5 billion, but same-store sales were essentially flat for the quarter.

H. Lee Scott, president and chief executive officer, said during a prerecorded call to Wall Street analysts, "We increased sales and earnings per share from continuing operations and we kept expenses in check….Quite honestly, we're not satisfied with our overall performance."

Scott said rising costs heightened inflation worries in Mexico, and that the management team at Walmex was long-term focused when it "launched an extensive rollback campaign on basic products like tortillas and produce intended to counteract inflation concerns." In the U.K., the ASDA team put an aggressive strategic business plan in place to broaden the appeal of its brand in local communities, he added.

In the U.S., the grocery business continues to do well, but the top concerns among discount store shoppers are income and gas prices. "For the customers in every community that we serve, we must deliver value regardless of weather and energy prices, and our associates must be there when our customers are shopping," Scott said.

Eduardo Castro-Wright, president and ceo of the Wal-Mart Stores division, told analysts that strength in grocery and pharmacy was not enough to offset the "soft performance" in apparel and home during the quarter. He added, "We continue to see pressure on margins because of markdowns and higher inventory in our softlines. We hope to see improvements in these areas by the back-to-school season." Castro-Wright emphasized that the discounter is ready for spring and summer with "core items like T-shirts and jeans."

The company forecast second-quarter EPS from continuing operations at between 75 cents and 79 cents. Wall Street was expecting second-quarter EPS of 79 cents.

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