Wal-Mart misses profit view

NEW YORK (Reuters) - Wal-Mart Stores Inc. (WMT.N) reported a lower-than-expected quarterly profit and cut its full-year earnings forecast on Tuesday, saying its customers remain under economic pressure.

Shares of the world's largest retailer fell nearly 5 percent.

Earnings rose to $3.1 billion, or 76 cents per share, in the second quarter ended July 31, from $2.08 billion, or 50 cents per share, a year earlier, when the company took a charge for selling its German stores.

Earnings per share from continuing operations were 72 cents per share before a gain of 4 cents. Analysts on average were expecting 76 cents, according to Reuters Estimates.

Chief Executive Lee Scott blamed the disappointing performance on economic pressure around the world.

"It is no secret that many customers are running out of money toward the end of the month," Scott said on a recorded conference call. Higher fuel prices, interest rates, utility costs and "more financial pressure" are hurting sales in its international market, including Mexico and Canada, he added.

In an interview, Chief Financial Officer Tom Schoewe said Wal-Mart expected many of the trends it saw in the second quarter to continue in the current quarter, but the retailer was still "feeling pretty good" about prospects for the holiday season.

"We're hopeful that many of the issues that created pressure in the second quarter, we can work our way through that in the third quarter," he said.

SALES STRUGGLES

With more than 127 million customers visiting a U.S. Wal-Mart store or a Sam's Club warehouse location in America every week, the company is considered a barometer of the health of the nation's retail sector.

But Wal-Mart has been struggling with slowing U.S. sales growth and announced plans earlier this year to cut the number of U.S. supercenters it will open.

It has also returned to emphasizing its low prices after efforts last year to play down its discount roots backfired with its core low-income shoppers.

For this back-to-school shopping season, which began in July, it has slashed prices on thousands of items by as much as 50 percent to boost sales at its U.S. stores. The retailer said last week that while the price cuts attracted shoppers, they also hurt margins.

Schoewe said the season had gone "OK," but more consumers were waiting until closer to the first day of school to make their purchases.

"We're pretty encouraged by back-to-school, but surprised by how late it's coming," he said.

On the recorded call, Eduardo Castro-Wright, CEO of Wal-Mart's U.S. operations, said the company still faced poor clothing sales and was cutting prices to move out merchandise.

He also said strong sales of low-margin items like groceries and weak sales of higher-margin goods like clothes were hurting profit margins.

In addition, Schoewe said Wal-Mart was contending with higher levels of "shrink" -- inventory that is lost employee theft, shoplifting, errors in paperwork or vendor fraud.

"If you think about the macro environment, where customers are under pressure, there's generally a correlation between theft and macro economic pressure," Schoewe said. "Unfortunately, that's what we're seeing."

Second-quarter sales were $91.99 billion, up almost 9 percent from a year ago.

U.S. sales at stores open at least a year, a key retail gauge known as same-store sales, rose 1.9 percent. Same-store sales rose 1.2 percent at Wal-Mart stores and increased 5.9 percent at Sam's Club.

Sales at Wal-Mart stores rose 6.5 percent to $59.01 billion, while sales in its international operations rose almost 16 percent to $21.6 billion.

HEADING TOWARD THE HOLIDAY

For its third-quarter, Wal-Mart forecast earnings per share of 62 cents to 65 cents from continuing operations, while analysts on average were expecting 68 cents.

For the full year, the company said it expected earnings of $3.05 to $3.13 per share from continuing operations, down from an earlier view of $3.15 to $3.23. Analysts were expecting $3.16.

Schoewe said the company had some "very aggressive marketing and sales plans" for the fourth quarter to help spur holiday sales.

Separately, Wal-Mart's Japanese retail unit, Seiyu Ltd. 8268.T, said it now expected to post its sixth straight annual loss on sluggish sales.

Wal-Mart shares fell 4.7 percent to $43.99 in early electronic trading from Monday's New York Stock Exchange close of $46.17.

Through Monday, Wal-Mart shares were almost flat this year, while close rival Target Corp. (TGT.N) was up almost 11 percent and the S&P Retail Index .RLX had fallen more than 5 percent.

(Reporting by Nicole Maestri)