Wal-Mart Frets as U.S. Shoppers Buy Food and Little Else

The poorer customers who shop at the nation’s biggest retailers are still on tight budgets. They wait inside the store at the end of each month with full shopping carts until the clock strikes midnight. Then, their electronic-benefit transfers from the government go through, and they pay for their groceries and other staples. They buy items in small packages, which cost less than big ones.

And while they are spending more on food at Wal-Mart than they did a year ago, they are buying less in most other categories.

Same-store sales, or sales at stores open at least a year, fell by 1.1 percent in the quarter in the United States, the company said on Tuesday. It was the eight quarterly drop in a row, one of the worst streaks in Wal-Mart’s history.

Over all, however, earnings beat analyst expectations, helped by sales strength in international stores and at its Sam’s Club unit. The company said its quarterly profit was $3.4 billion, or 97 cents a share, up from $3.3 billion, or 87 cents a share, a year earlier. Wal-Mart had forecast a profit of 91 to 96 cents a share for the quarter, and analysts expected a 95-cent-a-share profit on average.

Sales in the period, which ended April 30 and was the first quarter of Wal-Mart’s fiscal year, rose 4.4 percent, to $103.4 billion.

Low prices on groceries during an inflationary period helped sales, Wal-Mart executives said. Same-store sales in grocery were up in the single digits for the quarter in the United States. Wal-Mart said food prices rose about 1 percent in the quarter as a result of inflation.

Yet Wal-Mart had some trouble getting shoppers into the rest of the store.

In apparel, for instance. “We’re simply not converting enough of our grocery customers to shop apparel,” said William S. Simon, the president and chief executive of Wal-Mart’s United States division, in a conference call with investors.

After flirting with fashion-forward items, Wal-Mart decided to focus on basic clothes, but company executives said they did not perform well.

“It’s something that we’ve stumbled with over the last several quarters and we’re not happy with,” Charles M. Holley Jr., the chief financial officer, said in a conference call with reporters. “It does start with basics, and for us to be able to sell anything that’s fashionable at all, we really have to get basics down first.”

While “we had a fairly good quarter” with items like T-shirts and underwear, he said, “where we’re still not executing is in the kids’ and the women’s business.”

In other departments, Wal-Mart is piling merchandise in its aisles to signal value, and is stocking items in smaller packages that someone on a budget can afford, in an effort to take market share from dollar stores.

“You see customers that are running out of money at the end of the month going to the smaller pack sizes — they are not necessarily a better value,” Mr. Holley said, but “we have been continuing to work on that, so we have the smaller pack sizes.”

Wal-Mart said this strategy had been successful with products like air fresheners and fishing products, so far. “These modular changes focused on bringing back assortment, ensuring opening price points were available in all categories, and increased the holding power on the shelf,” Mr. Simon said.

Same-store sales were all in negative territory in categories like entertainment, including electronics; hard lines, which are items like hardware and crafts; apparel; and home.

In the United States, Wal-Mart has been making a number of changes to revive same-store sales. Michael T. Duke, chief executive of Wal-Mart, said on Tuesday that “comp sales growth remains the greatest priority for me and the entire Wal-Mart U.S. team.”

Wal-Mart said it would continue with its expansion plans in the United States, particularly with smaller stores. Its grocery-only stores, which are called Neighborhood Markets and are about one-third the size of a typical Wal-Mart, performed well in the quarter. There, same-store sales were up 4 percent as visits by customers rose. Wal-Mart said that because of those results, it would open another 30 to 40 Neighborhood Markets this year.

The company will also open 15 to 20 Wal-Mart Express stores by the end of the year in urban and rural areas. At about 15,000 square feet, they will sell groceries “along with key general merchandise categories,” Mr. Simon said. They will also function as a depot of sorts for Walmart.com’s items. Customers can order something from the extended online inventory, and pick it up at the store.

Analysts noted that drops in Wal-Mart’s same-store sales were at least easing.

“Top-line results came in somewhat ahead of expectations, reflecting a more moderate decline in U.S. comps,” Colin McGranahan, an analyst at Sanford C. Bernstein Company, wrote in a note to clients.

Wal-Mart said it expected same-store sales to range from down 1 percent to up 1 percent in its second quarter.

Separately, Home Depot also reported earnings on Tuesday. Although its profit beat Wall Street expectations, its same-store sales in the United States declined because of the harsh winter, Craig A. Menear, its merchandising chief, said in a call with investors.

Home Depot’s revenue was $16.82 billion, down from $16.86 billion in the same period a year earlier. But because of aggressive cost-cutting, its net income was up 12 percent to $812 million, or 50 cents a share, versus analyst expectations of 49 cents a share.

“It’s all weather,” Home Depot’s chief financial officer, Carol B. Tomé, said in an interview. “It’s not an assortment issue. It’s just when it’s cold and snowing and raining, people aren’t going to do the outdoor products.”

Shares of Wal-Mart fell 52 cents, or about 1 percent, to $55.54 a share. Shares of Home Depot rose 1.14 percent, or 42 cents, to $37.40.

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