updated 8/16/2005 12:48:23 PM ET 2005-08-16T16:48:23

Wal-Mart Stores Inc. said Tuesday its second-quarter profit rose 5.8 percent, beating Wall Street expectations, but revenue fell short of forecasts as its customers continue to struggle with higher gasoline prices.

The profit gain was the smallest since the second quarter of 2002, when the world’s largest retailer recorded a 2.8 percent increase. Wal-Mart also warned that earnings for the third quarter would be below analysts’ forecasts.

For the three months ended July 31, the Bentonville-based Wal-Mart earned $2.8 billion, or 67 cents per share, up from $2.65 billion, or 62 cents per share, in the same quarter a year before. The company reported sales of $76.8 billion for the three months ending July 31, up 10.2 percent.

Analysts surveyed by Thomson Financial expected a profit of 65 cents per share and revenue of $77.46 billion.

Wal-Mart Chief Executive Lee Scott noted the company’s sales came in lower than expected and he blamed high gasoline prices. Scott noted that a cool and wet spring got the quarter off to a slow start but summer came in stronger than forecast.

Scott said in a prerecorded call with investors Tuesday that inflation appears to be under control, except when considering fuel prices.

“I worry about the effect of higher oil prices,” he said. Scott said higher prices at the pump could erase economic gains for a portion of Wal-Mart’s customer base.

Scott said the company has kept its low-price items but has improved its mix of merchandise in mid- and premium-price categories.

Sales in stores open at least a year, known as same-store sales, rose 3.5 percent for the quarter at U.S. stores — 3.6 percent in the Wal-Mart division and 2.9 percent at Sam’s Club warehouse stores. The company projected same-store sales in the third quarter of between 3 percent and 5 percent.

Chief financial officer Tom Schoewe said utility expenses rose by $100 million in the quarter and fuel costs were up $30 million. Also, rising interest rates will affect the company’s cost of borrowing money. Wal-Mart is continuing an aggressive expansion and plans to increase its square footage by 8 percent this fiscal year.

Wal-Mart projected it would earn between 55 cents and 59 cents per share for its third quarter and between $2.63 and $2.70 for the year. Analysts are expecting a profit of 60 cents per share for the third quarter and $2.66 for the year.

For the first six months, Wal-Mart earned $5.27 billion, or $1.25 per share, compared with $4.82 billion, or $1.12 per share, in the year-ago period. Sales reached $147.72 billion, compared with $134.49 million a year ago.

Wal-Mart has 3,762 stores in the United States and 1,617 international stores, not counting its holdings in Seiyu Ltd. in Japan.

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