H&R Block Inc. (HRB), the largest U.S. tax preparation firm, Tuesday said it posted a first-quarter loss, compared with a year-ago profit, as higher interest rates shrank margins in its mortgage lending unit.

The Kansas City, Mo.-based firm, which provides mortgages through its Option One (search) business unit, reported a first-quarter loss of $44.1 million, or 26 cents a share, compared with net earnings of $5.2 million, or 3 cents, a year earlier.

Signs of an improving economy have prompted the Federal Reserve (search) to raise interest rates and expectations of further rate hikes have pushed borrowing costs for home buyers higher.

"We eat it in lower profit margins in the short term. We can't immediately pass through a rate increase to match the market move," H&R Block Chairman and Chief Executive Officer Mark Ernst told Reuters.

The company also reiterated its outlook for fiscal year earnings of $4.00 to $4.25 a share.

Wall Street analysts expect H&R Block to post full-year earnings of $4.06 a share, according to Reuters Estimates.

H&R Block said its first-quarter results were also weighed down by added off-season costs associated with expanding its tax business.

In announcing its latest quarterly results, the tax preparation firm said it is looking to add 400 more locations in Wal-Mart stores, following 500 openings at Wal-Mart (WMT) locations last year when it first started to court customers at the giant retailer.

In addition to opening the 400 new Wal-Mart locations in time for the next tax season, H&R Block said it is set to open 500 to 600 new offices in underserved markets where it sees growth opportunities.