Wal-Mart Stores Inc reported a flat quarterly profit that met Wall Street expectations on Thursday as the stronger U.S. dollar offset increased sales from shoppers seeking deals in its stores amid a global economic slowdown.

For the current quarter, the world's biggest retailer forecast results roughly in line with analysts' expectations as it faces tough comparisons with a year ago, when it got a boost from customers spending tax rebate cash in its stores.

Its stock fell 2 percent as investors had expected the behemoth discounter, which has gained market share and new customers amid the recession, to surpass earnings estimates.

Still, analysts said Wal-Mart's results were impressive given the tough climate and show it is outpacing competitors like Target Corp and Costco Wholesale Corp , which have seen profits fall.

As long as Wal-Mart continues to have the price leadership that they have and the store experience continues to improve from where it was a few years ago ... they'll keep many of these gains, said Barclays Capital analyst Robert Drbul.

Wal-Mart said profit was flat at $3.02 billion for its fiscal first quarter ended April 30, but on a per-share basis it earned 77 cents, up from 76 cents a year earlier.

Analysts on average had forecast earnings of 77 cents per share, according to Reuters Estimates.

Wal-Mart had warned that currency exchange rates would hurt its quarterly results, and it said on Thursday that currency reduced earnings by roughly 4 cents per share.

PROUD TO SHOP AT WAL-MART

Wal-Mart said customers have changed their shopping patterns, are focused on thrift and are now proud to tell their friends they shop at Wal-Mart.

We believe the improvements we've made in merchandising, marketing and operations in the U.S. and around the world are sustainable, Chief Executive Mike Duke said on a recorded call. This is not a short-term phenomenon.

In the quarter, sales fell 0.6 percent to $93.47 billion. Net sales increased 4.5 percent to about $98.31 billion on a constant currency basis, Wal-Mart said.

Sales at Walmart stores in the United States rose 3.8 percent to $61.24 billion, while they declined 1.4 percent to $10.96 billion in Sam's Club warehouse locations.

A large part of the growth in the U.S. discount stores is coming from new customers, with traffic at existing stores up to levels Wal-Mart has not seen in several years, Vice Chairman Eduardo Castro-Wright said on the recorded call.

Clearly declining gas prices compared to last year have had a role in driving traffic to our stores, but more important is the growing consumer need for value today, he said.

In an interview, Treasurer Charles Holley said Wal-Mart has planned a number of merchandising initiatives to appeal to cash-strapped shoppers, including aisles filled with items priced at $1.

We'll be doing more things like that throughout the next couple of months, he said.

Smaller rival Target already has $1 sections near the front of its stores, stocked with accessories and seasonal items.

INTERNATIONAL SALES TAKE A HIT

In Wal-Mart's international division, sales fell 11.1 percent to $21.26 billion, but on a constant currency basis international sales increased 9.1 percent to $26.099 billion.

In almost every country we grew the top line faster than the market despite the strong dollar and a recession that is even deeper in some countries than it is in the United States, Duke said.

For the second quarter, Wal-Mart forecast earnings per share of 83 to 88 cents from continuing operations. Analysts had been expecting 85 cents.

A year ago, Wal-Mart got a boost in its second quarter from the U.S. government's economic stimulus package that distributed about $100 billion in tax rebates to 130 million households.

To entice shoppers to use their rebate dollars in its stores, Wal-Mart offered to cash the checks for free, and it cut prices on staple goods such as cereal and lunch meat.

Taking into account the lack of tax rebate checks this year, the company forecast U.S. same-store sales to be flat to up 3 percent for the 13 weeks from May 2 through July 31, which roughly tracks its second quarter.

Wal-Mart shares declined 99 cents, or 2 percent, to $49.04 in afternoon trading.

(Reporting by Nicole Maestri; Editing by Lisa Von Ahn and Gerald E. McCormick)

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