Wal-Mart disappointed by results

NEW YORK (CNNMoney.com) -- Wal-Mart Stores on Tuesday posted fiscal first-quarter earnings that the company said should have been better as it warned that second-quarter results would come in at or below forecasts.

Wal-Mart (Charts, Fortune 500), the world's largest retailer, reported earnings from continuing operations of $2.8 billion, or 68 cents a share, for the period ending April 30, up from $2.7 billion, or 64 cents on that basis a year earlier.

That was a record result and in line with the forecast of analysts surveyed by earnings tracker First Call.

Total revenue came in at $86.4 billion, up 8.5 percent to a record but a bit shy of the First Call forecast of $86.9 billion.

"Again we had record sales and earnings, but we're not where we were expected to be. We are not satisfied with our overall performance," Wal-Mart CEO Lee Scott said in a pre-recorded call to discuss the company's results.

Wal-Mart stock edged lower in early New York Stock Exchange trading.

Of the company's three major operating divisions - namely Wal-Mart U.S. discount stores, Sam's Club warehouse stores and Wal-Mart's international division - Scott said the company continues to struggle with sluggish sales at its core U.S. business.

Sales overseas rose 18.5 percent in the quarter and now account for about 23 percent of the company's total business and is the retailer's fastest-growing division, Scott said, adding that profits at Sam's Club grew faster than sales for the seventh consecutive quarter.

But it was a decidedly different story back at home, where Scott said its U.S. customers are feeling squeezed.

"There are three main concerns for our customers: income, cost of living and gas prices," he said.

Indeed, Wal-Mart, which averages about 100 million shoppers at its stores each week, caters to mostly low- to mid-income households, many of whom shop paycheck to paycheck.

Wal-Mart executives have continued to blame softening sales at the retailer's stores - a key retail measure known as same-store sales - on gas prices, saying that higher prices at the pump eats into the limited discretionary income of its low-end consumers.

However, Wal-Mart has also been plagued by more company-specific issues such as disruptions from ongoing store remodeling programs and disappointing clothing sales, especially in the fashion category.

Moreover, while sales of food and other consumables continue to outperform other products such as clothes, footwear and electronics, industry watchers say this is becoming a problem for Wal-Mart since groceries tend to be a low profit-margin category.

Wal-Mart's first-quarter sales were hurt by a 3.5 percent decline in same-store sales in April, the weakest sales comparison the company has ever reported.

Because of the sales shortfall, Wal-Mart said its inventories in the quarter rose 10.3 percent, outpacing year-to-date sales growth of 8.3 percent, and failing to meet the company's objective of growing inventories at half the rate of sales gains.

The discounter blamed the widespread sales weakness last month on a yearly calendar shift that affects the timing of the Easter holiday.

This year, Easter arrived a week early, which pulled a lot of holiday-related sales from April into March, thus boosting March sales numbers and hurting April.

Other major retailers, including Federated Department Stores (Charts, Fortune 500) and J.C. Penney (Charts, Fortune 500), also reported disappointing April sales numbers, while Wal-Mart's major competitor Target (Charts, Fortune 500) reported a drop in same-store sales roughly in line with forecasts.

For the second quarter, Wal-Mart is now forecasting earnings per share of 75 to 79 cents. First Call's forecast is for EPS of 79 cents.

And it said that same-store sales would be up only 1 to 2 percent in the quarter. That would still be better than the 0.6 percent gain in those sales in the first quarter.

Home Depot (Charts, Fortune 500), the nation's largest home improvement retailer and also a Dow component, reported earnings Tuesday that fell well short of First Call's forecast.

--CNNMoney.com senior writer Chris Isidore contributed to this report.