Wal-Mart’s Q1 profit up 8%, but CEO not satisfied

WAL-MART Stores, the world's largest retailer, said first-quarter profit rose 8.1% on higher sales of food and $4 generic drugs while posting its smallest sales increase at older US stores in at least a dec-ade. Net income climbed to $2.83 billion, or 68 cents a share, from $2.62 billion, or 63 cents, the company said today in a statement, also helped by gains in the UK and Latin America. Wal-Mart forecast second-quarter profit that may be less than analysts' estimates after fewer customers visited stores because of rising gasoline prices and stormy weather. Chief executive officer H Lee Scott promoted low prices for groceries and prescriptions after failing to lure consumers with more fashionable clothes and home goods. “We're not satisfied with our overall performance,” Scott said on a re-corded call. First-quarter sales at the Bentonville, Arkansas-based retailer in-creased 8.3% to $85.4 billion, with international locations climbing 19 percent. Sales at stores open at least a year rose 0.6%, the smallest gain since at least 1996.

Wal-Mart said it will earn between 75 cents to 79 cents a share in the second quarter. The average estimate of 19 analysts surveyed by Bloomberg is 79 cents. The retailer reiterated its forecast of a comparable-store sales gain of 1 percent to 2%. “I think it's going to be a tough rest of the year,” chief financial officer Tom Schoewe said in an interview on Tuesday. “There's no indication that we're going to see gas prices ease off.”

Shares of Wal-Mart fell 20 cents to $47.64 at 11.42 am in New York Stock Exchange composite trading. They have climbed 3.6% this year before today, compared with a 1.6% gain by rival Target Corp. Nineteen analysts surveyed by Bloomberg estimated average profit of 68 cents a share. The company had forecast profit between 68 and 71 cents for the quarter. Earnings included an $85 million gain from an excise tax refund and $83 million in litigation costs, Wal-Mart said. Revenue was hurt after the coldest April in a decade, resulting in a 3.5% same-store sales decline that was the worst in at least 28 years, Wal-Mart said May 10. Gasoline prices have risen 36% since February to an average of $3.10 a gallon in the week ended May 14.

“Higher gas prices have been a pretty detrimental thing for their busi-ness,” said Rick Rubin, an analyst at Mercantile Bankshares Corp. in Baltimore, with $22 billion in assets including Wal-Mart shares. In February 2006, Wal-Mart introduced a campaign with the slogan, “Look beyond the basics,” that highlighted higher- priced items such as $400 patio sets. The retailer abandoned that strategy by the holidays, slashing prices on toys and electronics and emphasizing that it was the cheapest destination. Scott told analysts last year the company had moved too quickly into more cutting-edge merchandise such as its Metro 7 clothing line and needed to refocus on lower prices and basic goods such as food.