NEW YORK (CNN/Money) - Warmer weather and heavy discounting at the start of the back-to-school shopping season helped retail sales flourish in July.

Discount chains, led by industry behemoth Wal-Mart Stores Inc., posted better-than-expected numbers.

Wal-Mart (WMT: up $0.99 to $56.73, Research, Estimates), the world's largest retailer, said July sales at stores open at least a year -- a key retail measure also known as same-store sales -- rose 4.6 percent in the month ended Aug. 1, and it also upped its fiscal second-quarter earnings guidance.

The company previously said it was looking for a 2-to-4 percent gain in that measure. It now expects August sales to rise 3-to-5 percent.

In a pre-recorded sales message, Wal-Mart said the sales boost was due to "seasonally correct temperatures, clearance sales, easier comparisons, and also benefited from change in the tax withholding tables under the president's stimulus plan."

The retailer raised its second-quarter profit forecast to 52 cents a share from its earlier guidance of between 49 and 51 cents a share. Analysts surveyed by earnings tracker First Call had a consensus earnings-per-share forecast of 50 cents

Wal-Mart, which already anticipated a sales boost from tax rebate checks, last month began offering customers the option to cash their checks at any of its Wal-Mart and Sam's Club stores for free. Wal-Mart said 15 percent of the checks cashed in its stores thus far were spent in the stores. That's down from 25 percent two year ago when household also received tax rebate checks.

Clearance sales also buoyed sales at Target Corp. (TGT: up $0.87 to $38.56, Research, Estimates), which posted a 3.1 percent rise in July, while J.C. Penney (JCP: down $0.28 to $17.87, Research, Estimates) said July same-store sales for the month at its department stores rose 3.7 percent, helped by improving numbers across all its merchandise divisions.

For August, the department store chain said it continues to expect same-store sales in department stores to be up in the low single digit percentage.

Federated Department Stores (FD: up $0.98 to $39.83, Research, Estimates), parent of Macy's and Bloomingdale's, logged a 0.4 percent drop in July sales but raised its second-quarter earnings guidance.

The company said it expects second-quarter earnings to be in the range of 60-to-63 cents a share, up from its prior guidance of 50-to-55 cents a share, helped by stronger-than-expected sales and tighter inventory. Analysts have forecast 54 cents a share, according to First Call.

Sears, Roebuck & Co (S: up $0.05 to $40.45, Research, Estimates). reported its 23rd straight month of same-store sales declines, down 0.8 percent in July. But even Sears found a silver lining. The retailer said it expected August same-store sales to be flat compared with a year ago, suggesting the veteran retailer might finally snap the extended slump.

Despite the encouraging picture across the board, some industry watchers said still cautious about the retail outlook for the second half of the year.

"These numbers come on the back of heavy discounting," said Kurt Barnard, independent retail consultant. "The back-to-school period also fueled results. Beyond that, the situation last year in July wasn't good. So retailers were up against much easier comparisons."

Added Barnard, "Are consumers buying more? I don't know. I think what Wal-Mart said about people spending less of the rebate money this year in stores is significant. It shows people prefer to save any extra money than spend it."

Bill Dreher, retail analyst with Deutsche Bank Securities, was more optimistic. "The numbers were stronger than expected and not just on the topline. We're also seeing some stronger profits."

No. 1 electronics retailer Best Buy (BBY: up $3.81 to $44.49, Research, Estimates) said it now expects its fiscal second-quarter profit to be in the range of 37 cents-to-42 cents a share, significantly higher than its June 18 estimate of earnings between 27 cents and 32 cents a share.

"Strong comparable store sales growth, increasing gross profit rates and diligent costs controls all are contributing to the higher earnings guidance from continuing operations," Darren Jackson, Best Buy chief financial officer, said in a statement.

The retailer also raised its fiscal 2004 profit estimate to between $2.27 and $2.32 a share from an earlier guidance of between $2.17 and $2.22 a share.

Industry watchers say July is more of a transitional month for the industry, where merchants word hard paring down inventory to prepare for the Fall merchandise. Ken Perkins, retail analyst with First Call, said August is often the lead indicator on how the rest of the season pans out for retail sales.

"August is the big month because that's when the bulk of the back-to-school revenues are generated," said Perkins. "But we got some very positive signs in July, especially with apparel sales showing the strongest monthly gains. Apparel sales are important because they provide the first indication of how consumers are spending their discretionary income."

Among the apparel chains posting gains in July were women's specialty chain Ann Taylor (ANN: up $1.47 to $30.77, Research, Estimates), with same-store sales up 7.6 percent in July, and No. 1 casual apparel retail Gap Inc. (GPS: up $0.30 to $18.01, Research, Estimates), with sales up 9 percent. Both companies also raised their earnings outlook for the second quarter.