Wal-Mart Stores Inc. (WMT) on Thursday said third-quarter sales were weaker than it had planned but earnings will be at the high end of its estimated range because of improved margins and a better tax rate.

The world's biggest retailer said sales at its U.S. stores open at least a year rose 2.8 percent in October, toward the low end of its forecast of 2 percent to 4 percent.

The result was in line with a 2.8 percent estimate the Bentonville, Ark., company gave at its weekly sales update last Saturday when it reported good sales of bedding, children's and men's clothing and pet supplies.

But analysts welcomed Wal-Mart's announcement that it now expected earnings for the fiscal quarter ending Oct. 31 to come in at the high end of its forecast range of between 52 cents and 54 cents a share.

The company attributed this to gross margins in the quarter exceeding its forecasts and a change in its effective tax rate, which had resulted primarily from the retroactive renewal of work opportunity tax credit.

"This demonstrates their ability to show strong earnings growth despite modest sales increases," said Bill Dreher, an analyst with Deutsche bank Securities Inc. (search) .

"From that perspective it is encouraging for the fourth quarter and next year."

Analysts were on average expecting Wal-Mart to earn 52 cents per share in the third quarter, according to Reuters Estimates before the company's statement on Thursday. The retailer is due to post its quarterly results on Nov. 16.

Wal-Mart, which operates over 5,000 stores worldwide, has forecast full year 2004 earnings in a range of $2.36 to $2.40 per share with analysts on average expecting earnings of $2.38.

During October, Wal-Mart said net sales rose 10.4 percent over a year ago to $21.04 billion.

Same store sales rose 2.4 percent in the Wal-Mart stores division and increased 5.0 percent at Sam's Club warehouse stores, the company said.

International sales for the period were $4.31 billion, up 16.2 percent over the same period a year ago.

Wal-Mart said it expected same-store sales to rise between 2 percent and 4 percent in November. It has forecast sales for full year 2004 rising between 2 percent and 4 percent.