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Wal-Mart Stores (NYSE:WMT) reported financial results for its second quarter before the market open today. The retail titan delivered earnings that fell short of Wall Street's expectations and cut its guidance for the year ahead. Investors appear to be selling on the news, with shares down about 3% as of noon ET.

Flat sales
Total revenue was basically unchanged from the year-ago quarter at $120.2 billion as foreign exchange rate fluctuations continue to dampen results. On a constant-currency basis, total revenue rose 3.6% to $124.5 billion.

U.S. comparable-store sales grew 1.5%, driven by increases in traffic and average ticket prices of 1.3% and a 0.2%, respectively. The performance of Wal-Mart's smaller-format Neighborhood Market stores was once again a bright spot, with comps rising 7.3%. These rising comps combined with new store openings helped fuel a 4.8% year-over-year increase in Wal-Mart's U.S. sales to $74 billion.

However, the U.S. revenue gains were largely offset by a 9.6% decline, to $30.6 billion, in Wal-Mart's international sales, which saw a negative impact of $4.2 billion from foreign currency exchange fluctuations. On a constant-currency basis, Wal-Mart's international sales rose $2.8% to $34.8 billion. Sales at Sam's Club declined 0.9% to $14.7 billion, but increased 2.8% when excluding the effects of lower fuel prices. Global e-commerce sales also showed signs of promise, jumping 16% on a constant-currency basis.

Lower profits
However, despite the overall steady state of Wal-Mart's sales, consolidated operating income declined 10%. Lower gross margins and higher operating expenses related to Wal-Mart's investments in improved customer service in its stores dented profits. By segment, operating income fell 8.2% in the U.S., 14.2% (1.5% on a constant-currency basis) in international, and 13.4% (9.7% ex fuel) at Sam's Club.

All told, second-quarter earnings per share from continuing operations declined 10.7% to $1.08. That was below the $1.12 Wall Street was expecting.

Looking ahead
Wal-Mart expects third-quarter earnings per share to be in the range of $0.93 to $1.05, the midpoint of which would represent a decline of 14% from last year's third quarter.

Management also lowered its full-year EPS guidance to a range of $4.40 to $4.70, from a previous range of $4.70 to $5.05. The midpoint of the new guidance range would represent a year-over-year decline of nearly 9%. It cited several reasons for the expected decline, ranging from higher employee expenses related to the company's continuing efforts to improve customer service at its stores; additional investments in its global e-commerce platform; reduced pharmacy reimbursements rates; worse-than-expected currency exchange range impacts; and higher-than-anticipated "shrink" (retailspeak for theft) at its U.S. stores.

"We're pleased that the investments we've made are helping to improve our business," said CEO Doug McMillon in a press release. "Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it's reflected in our comps and revenue growth. In this case, our desired changes require investments, which are pressuring earnings this year. We're confident that our strategic plan will create robust sustainable growth for shareholder returns over time."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.