Wal-Mart Stores Inc. continues to leave everyone else in its wake.

Even as the retailer reported flat first-quarter net income, the results positioned it as this earnings season’s leader in profit performance, at least so far, as well as in price and volume.

This story first appeared in the May 15, 2009 issue of WWD. Subscribe Today.

Wal-Mart’s flat profits stood in direct contrast to the other stores reporting results Thursday, all of which saw profits declines. Nordstrom Inc., Urban Outfitters Inc. and Kohl’s Corp. saw profits fall 31.9 percent, 27.6 percent and 10.5 percent, respectively, but all three finished above consensus estimates.

Amid the gloom was a glimmer of optimism, however: Both Nordstrom and Kohl’s raised earnings guidance, an indication that stores might be reconsidering the highly cautious plans with which they emerged from the brutal holiday 2008 season.

And the better-than-expected results helped lift the S&P Retail Index 2.3 percent on Thursday morning, but profit-taking and another disappointing unemployment report pulled the index back down to near its starting point late in the day, finishing up 0.3 percent at 315.17. The Dow Jones Industrial Average, of which Wal-Mart is a component stock, was up 0.6 percent for the day, to 8,331.32, while the S&P 500 advanced 1 percent to 893.07.

Macy’s Inc. kicked off the earnings season Wednesday by reporting a higher quarterly loss, and J.C. Penney Co. Inc. and Abercrombie & Fitch Co. are due to report their first-quarter results today. Analysts expect Penney’s to report a smaller profit and A&F to report a loss against a year-ago profit.

On Thursday, the heads of Wal-Mart’s U.S., international and Sam’s Club divisions sounded a cautionary refrain for the second quarter, when the retailer faces tough comparisons with last year. Wal-Mart will be fighting headwinds of last year’s government stimulus checks as well as the impact of currency fluctuation that could continue through the third quarter.

Net income for the quarter ended April 30 was flat at $3.02 billion, or 77 cents a diluted share, in-line with analysts’ estimates and at the high end of the company’s 5 cent range. Net sales for the quarter were $93.4 billion, a decrease of 0.6 percent from $94 billion in the 2009 period. Charles Holley, treasurer, said sales would have increased 4.5 percent to about $98.3 billion without a $4.8 billion reduction because of currency.

Mike Duke, president and chief executive officer, cited the company’s 3.7 percent increase in U.S. comparable-store sales, excluding fuel. “I’m pleased that this comp surpassed our own expectations,” he said.

Among Wal-Mart’s initiatives in the current quarter are a series of in-store commercials called “American Summer,” incorporating idyllic summer scenes and products available at Wal-Mart and on display in 2,650 units. Cash-strapped shoppers also will have access to new dollar aisles, where everything in stock costs $1, a move clearly aimed at the dollar-store sector that has been booming in the downturn.

Eduardo Castro-Wright, vice chairman of Wal-Mart, reported inventory was down 3.2 percent, and net interest expense down 5.8 percent, from a year ago. He also noted that, with sales at new and remodeled stores exceeding expectations and despite difficult year-ago comparisons, comps for the current second quarter are expected to land between flat and up 3 percent.

Hurt by currency effects, international sales declined 11.1 percent to $21.3 billion in the first quarter. The strongest markets were Brazil, Mexico and the U.K., where ASDA’s George brand gained 40 basis points of market share.

Shares fell 93 cents, or 1.9 percent, to $49.10 Thursday.

After the markets closed, Nordstrom reported that, in the quarter ended May 2, net income slipped to $81 million, or 37 cents a diluted share, from $119 million, or 54 cents a share, a year ago. Sales fell 9.2 percent, to $1.71 billion from $1.88 billion, and were off 13.2 percent on a same-store basis. Excluding a 6 cent tax benefit, EPS was 31 cents, 5 cents above consensus estimates, which also called for revenues of $1.69 billion.

The Seattle-based company said its gains in gross profit and credit card revenues in the quarter were partly offset by bad debt expenses, but Mike Koppel, chief financial officer, defended the company’s credit card business on a conference call with investors.

“That end of the business has seen some tougher innings than some others, but we continue to have customers in our portfolio that spend more than those who have other cards,” he said. “When this cycle turns around and when it does correct itself, we expect that business to be back to where it was.”

Based on its first-quarter results, the company boosted its annual EPS guidance to the range of $1.25 to $1.50, up from projections of $1.10 to $1.40.

Shares of Nordstrom closed the session before the earnings announcement at $20.95, up 68 cents, or 3.4 percent.

Kohl’s net income fell 10.5 percent to $137 million, or 45 cents a diluted share, from $153 million, or 49 cents, a year earlier. Profits came in ahead of the 43 cents analysts projected. Sales for the quarter ended May 2 rose 0.4 percent to $3.64 billion from $3.62 billion as comparable-store sales fell 4.2 percent.

Kohl’s opened 19 stores in the first quarter and this fall plans to open another 37 doors, most of which will be former Mervyns sites picked up after that chain was liquidated. The Menomonee Falls, Wis.-based retailer now anticipates earnings of $2.19 to $2.42 a diluted share this year, up from the $2 to $2.30 previously expected. Shares of the firm fell 71 cents, or 1.7 percent, to $41.24 following the Thursday-morning announcement.

Philadelphia-based Urban Outfitters said customers today are responding only to merchandise they absolutely can’t live without.

“Our data tells us the customer is buying less and that she’s more discriminating,” ceo Glen Senk told analysts on a conference call. “She’s seeking fashion, and there’s no evidence of price elasticity on desirable product. If it’s a ‘love,’ she’s buying it, plain and simple. If it’s a ‘like,’ perceived as too basic, or a recycle of older fashion, she may wait for the first markdown. And if she doesn’t like the product, it’s not going to sell until it’s on clearance.”

As a result, he challenged his merchants and designers “to work harder and smarter to create and identify the ‘loves.’ Just like our customer, they’ve got to be more discriminating.”

For the period ended April 30, profits fell to $30.8 million, or 18 cents a diluted share, 1 cent better than analysts expected, from year-ago net income of $42.6 million, or 25 cents a share. Net sales shrank 2.4 percent to $384.8 million, from $394.3 million, a year earlier. Analysts had projected earnings of 17 cents a share.

Comparable-store sales declined 7 percent overall, with drop-offs of 6 percent at the namesake division, 13 percent at Anthropologie and 23 percent at Free People. Pressured by higher store occupancy expenses, lower sales and higher markdowns, gross margin slipped to 37.2 percent of sales from 40.2 percent in the first quarter of 2008.

“I’m feeling more optimistic than I have since October 2008,” Senk told analysts. “I don’t believe we’ll be returning to 2007 spending levels for several years, but I believe the environment is considerably more stable than it was in the fourth quarter.”

Shares rose 21 cents, or 1.1 percent, to $19.04 on Thursday.

In Washington Thursday, the Labor Department reported wholesale prices for U.S.-made apparel fell 0.3 percent in April compared with March, but increased 1.3 percent from a year earlier.

Women’s and girls’ apparel prices declined 0.5 percent in April, but increased 1.3 percent in year-to-year comparisons, according to the Producer Price Index. Men’s and boys’ apparel prices were up 0.1 percent month-to-month and 2 percent from the prior year.

Prices for all U.S.-made goods increased a seasonally adjusted 0.3 percent in April, driven primarily by rising food prices. The increase followed a drop of 1.2 percent in March and a rise of 0.1 percent in February.