Wal-Mart US Sales Tick Higher, But Profit Hit -- 3rd Update

By Sarah Nassauer And Chelsey Dulaney 

Wal-Mart Stores Inc. kept its short streak of improving U.S. sales alive, but the cost of higher wages and the strong dollar pushed its profit down.

The slim gain in U.S. sales for the first three months of the fiscal year was the third straight for the world's biggest retailer, whose new chief executive, Doug McMillon, has focused on stopping a long slide in its home market. Wal-Mart drew more shoppers to its stores for the second straight quarter, and they spent just a hair more than a year earlier.

The value of the company's international sales were hurt by the stronger dollar, causing overall sales to fall.

Mr. McMillon acknowledged Tuesday that the company had room to improve, saying on an earnings call that "we're not where we want to be in every store."

In all, Wal-Mart said its profit fell 7% to $3.34 billion, as revenue fell 0.4% to $114.8 billion. Shares fell 2.4% in premarket trading.

The results, while a sign of some progress for Wal-Mart, marked yet another lackluster showing for retailers amid concerns the economy hit a soft patch at the beginning of the year. Department stores like Macy's Inc. reported soft sales, and government data for overall retail sales has often been flat or down in recent months.

"We know that many of our U.S. customers are using their tax refunds and the extra money from lower gas prices to pay down debt or put it into savings," Mr. McMillon said on the earnings call. "They're also using these funds for everyday expenses," he said.

A year ago, Wal-Mart was struggling with flat or falling sales in the U.S., but the company notched two quarters of gains at the end of last year, helped by operational improvements, lower gas prices and falling unemployment.

In the latest quarter, U.S. same-store sales edged up 1.1%, excluding fuel, below analysts' estimates of a 1.5% increase.

To turn around its struggling domestic business, Wal-Mart is working to improve store operations like offering fresher produce and better customer service, which the company acknowledges had hurt sales in recent years, while pushing suppliers to deliver ever cheaper prices.

It also is investing in its online business and announced earlier this year that it would raise the minimum wage paid to employees--moves that ate into its profits.

Online sales grew by about 17%, much faster than overall sales, but a slower rate than in the past two years.

For the current quarter, Wal-Mart forecast earnings of $1.06 to $1.18 a share. Analysts polled by Thomson Reuters had forecast $1.17 a share in earnings.

Write to Sarah Nassauer at [e-mail] and Chelsey Dulaney at [e-mail]

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