Gas prices add to Wal-Mart pain

NEW YORK -- Rising gas prices are adding another obstacle to Wal-Mart Stores Inc.'s campaign to reverse a two-year U.S. sales slump.

Strong overseas revenue, growth at Sam's Club and Wal-Mart's specialty -- cost-cutting -- pushed the world's largest retailer's net income up 3 percent in the first quarter, beating Wall Street expectations.

But business at home is still soft. Wal-Mart, whose headquarters is based in Bentonville, Ark., says it is seeing some improvements but needs more time to see whether hammering its low-price message and restocking items it had scrapped can turn around sales.

Wal-Mart offered a cautious second-quarter earnings outlook because of a new headache. It's worried its low-income customers will spend less at its stores as gasoline hovers around $4 a gallon. They're already consolidating trips to the company's discount stores to minimize driving.

Wal-Mart's fears have deep repercussions because it's a bellwether of consumer spending and accounts for nearly 10 percent of all nonautomotive retail dollars spent in the U.S.

"Despite improvements in some areas of the economy, core Walmart U.S customers are still stretched," said Mike Duke, Wal-Mart's CEO in a prerecorded conference call Tuesday. "They remain concerned about rising prices for gas, energy and food, as well as employment issues. Customers trust us to be their ally in fighting rising gas prices and inflation."

U.S. Walmart stores, which represent 62 percent of the company's business, posted their eighth straight quarter of revenue declines at stores open at least a year.