H. Lee Scott Jr.

Wal-Mart Stores' first-quarter earnings beat estimates, but the firm raised concerns over higher gas and utility costs in the second quarter.

NEW YORK — Wal-Mart Stores Inc. on Tuesday said first-quarter earnings beat Wall Street estimates by 2 cents, but raised concerns about the impact of higher gas and utility costs in the second quarter.

The world’s largest retailer said income for the quarter ended April 30 gained 6.3 percent to $2.62 billion, or 63 cents a share, from $2.46 billion, or 58 cents, in the same year-ago period. Wall Street analysts were expecting 61 cents.

Sales in the quarter rose 12.3 percent to $79.6 billion from $70.9 billion, which included a same-store sales gain of 3.8 percent for the U.S. operation of the Bentonville, Ark.-based retailer. By division, sales at Wal-Mart stores rose 10.2 percent to $52.5 billion, while comps gained 3.8 percent. Sam’s Club sales increased 6.8 percent to $9.8 billion, with a 4.3 percent rise in comps. The international operation posted a 22.9 percent gain in sales to $17.3 billion.

H. Lee Scott Jr., president and chief executive officer, said in a prerecorded message that an improved shopping experience and the broadened appeal of Wal-Mart’s merchandise drove sales increases.

“We are retaining our loyal opening price point customers through Wal-Mart’s everyday low-price strategy,” Scott said. “We are working to get the selective customers to buy more merchandise in our stores. We see a lot of value in this approach, and we will continue to fine-tune it.”

In a research note, Merrill Lynch analyst Virginia Genereux wrote: “While energy prices are likely to leach a few pennies from the next few quarters, we think this quarter will enable investors to look through such near-term macro headwinds. Merchandise and operating improvements at the Wal-Mart U.S. division offer potential for earnings upside and multiple expansion [in] 2007.”

Wal-Mart has launched pricier, more fashionable apparel under the Metro 7 label and opened a Plano, Tex., SuperCenter to serve as a laboratory for testing upscale concepts. Scott said at the company’s media conference last month that Wal-Mart also would focus on the needs of Hispanic consumers, whom he sees as a major constituency. Another goal of the company is the reduction of costs.

“We are leveraging labor cost and looking at opportunities for us to take cost out of our operation,” Scott said. “Like most companies and suppliers, we are experiencing higher utility prices. These are having an impact this year. We continue to see higher gasoline and utility prices affecting our customers around the world and this could pressure our results as we move into the second quarter.”

This story first appeared in the May 17, 2006 issue of WWD. Subscribe Today.

Taking into account the impact of the increased prices on its customers, the discounter is expecting second-quarter earnings per share at between 70 cents and 74 cents, said Tom Schoewe, executive vice president and chief financial officer. For the year, Wal-Mart is estimating EPS of $2.88 to $2.95.

Schoewe said the increase in same-store sales was driven by a boost in the average ticket in the quarter, while customer traffic declined slightly. He noted that, toward the end of the quarter, in early April, Wal-Mart already was seeing the impact of rising fuel costs on its customers.

Michael Duke, vice chairman of Wal-Mart International, said the company had “terrific growth” in sales, profit and return on investment in Mexico, but the U.K. is still experiencing a “soft economy.” The geographic region with the biggest growth rate is China, where the business gained more than 30 percent. The company plans to open 18 to 20 new stores in China this year.

Wal-Mart shares were up 64 cents on Tuesday, closing at $48.07 in New York Stock Exchange trading.