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Wal-Mart Record Profits Shy of Goals

"Not satisfied" with its company-wide performance for the first quarter, Wal-Mart Stores president and ceo Lee Scott said the plan is to improve its customer service and returns of its U.S. division.

"We know well the challenges in the United States," Scott said during the mega-retailer's quarterly earnings call. "The top three concerns among discount store shoppers are all economic. Number one is money or income; two is cost of living; and three is gas prices. Obviously, saving money is important to our customers. You will see us become more committed than ever to price leadership."

Net sales for the first quarter of fiscal year 2008, ended April 30, were a highest-ever $85.387 billion, an increase of 8.3% over the first quarter of fiscal year 2007. Income from continuing operations for the quarter, also a new record, was $2.826 billion, an increase of 6.2% from $2.660 billion one year ago.

Total U.S. comp sales were up 0.6% for the period, comprising a comp gain of 0.6% at Sam's Club and a very unusual comp drop of 0.1% at Wal-Mart stores. The company projects a comp gain of 1% to 2% for the second quarter.

Expanding on the changes made and those in progress was Eduardo Castro-Wright, evp, president and ceo of the Wal-Mart Stores division.

The "roadmap" to the performance improvement strategy for Wal-Mart Stores U.S. includes the recent changes organizationally within the division's senior management team. "We named several executives to new key management roles," he said. "Everyone is in a new role."

They are: William Simon, coo; John Fleming, evp and chief merchandising officer; Stephen Quinn, evp, chief marketing officer; Patricia Curran, evp, people division; Raul Vazquez, president and ceo, www.walmart.com; and Michael Fung, cfo.

While grocery, pharmacy, and electronics continue to be stronger performing categories for the chain, its higher-margin categories of home and apparel have not been as successful, partly because of the impact of the colder weather, Castro-Wright said.

"This added pressure to our gross margin during the first quarter, and we will continue to see pressure on margins because of markdowns and higher inventory in our soft lines," he continued. "We hope to see improvements in these areas by the back-to-school season — which really kicks off for our customers in July."

In the meantime, Wal-Mart Stores is "ready for spring and summer," Castro-Wright said, with items like t-shirts and jeans.

Looking ahead to this year's second half, Wal-Mart's merchandise mix "will reflect the preferences of our broad customer base, community by community."

Castro-Wright said the U.S. division is currently testing a new version of its home pad in 10 markets. He is "optimistic" about this pilot program because initial customer reaction is "very positive." But he warned, "It is too early to know what the impact will be on comparable-store sales."

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