Wal-Mart profit rises, US sales still slump

 Wal-Mart Stores Inc reported a 27 per cent increase in fourth-quarter net income as the world's largest retailer benefited from cost-cutting and strong sales overseas.

But a key revenue measure in the company's United States business fell for the seventh quarter in a row and came in worse than Wal-Mart's own projection.

Customer counts fell during the quarter, marking a full year that the discounter has lost shoppers to dollar stores and other rivals for quick fill-in trips to buy milk or diapers.

"Some of the pricing and merchandising issues in Wal-Mart ran deeper than we initially expected, and they require a response that will take time to see results," CEO and President Mike Duke said in a statement.

Wal-Mart shares fell more than three per cent, to US$53.48 during trading Tuesday. The stock has been slipping since the end of January as worries on Wall Street mounted over its fourth-quarter sales.

Net income

Wal-Mart posted net income of US$6.06 billion, or US$1.70 per share, in the quarter ended January 31. That compares with US$4.76 billion, or US$1.25 per share, a year earlier.

Total revenue rose 2.4 per cent to US$116.3 billion. Net sales, excluding membership and other income, increased 2.5 per cent to US$115.6 billion.

Revenue at new stores opened at least a year fell 1.1 per cent, dragged down by a 1.8 per cent drop at its namesake discount stores, which account for nearly two-thirds of its business. Analysts had expected a 0.8 per cent increase, according to FactSet.

Excluding one-time items such as a tax benefit, earnings were US$1.34 per share. Analysts expected earnings of US$1.31 per share on net sales of US$117.52 billion.

The company said that it may accelerate the timetable for opening smaller stores in urban and rural markets and is bolstering its online business to turn around US sales. But the downbeat fourth-quarter revenue report raised doubts that turnaround will come this year.

Wal-Mart executives had told investors in November that the holiday quarter would mark the end of the streak in declining revenue, the longest such stretch since at least 1980.

Over the past year, the company scrambled to add back thousands of products it had culled as part of a renovation of its stores. In recent months, it went back to emphasising low prices across the store.

Wal-Mart's disappointing holiday report shows that those changes are taking time to lure back shoppers. The 1.8 per cent decline at US namesake stores is particularly weak because it comes on top of a 2 per cent drop in the same period last year. The measure is based on revenue at stores open at least a year and is considered a key indicator of a retailer's health.

Wal-Mart's funk contrasts with where it found itself at the beginning of the recession in late 2007. Unlike most stores, Wal-Mart thrived.

Its core customers - households making less than $70,000 a year - bought more. And, affluent shoppers became price-conscious and discovered Wal-Mart's prices were hard to beat.

Renovation backfires

Wal-Mart was finishing a major renovation to address complaints that its stores were messy. But that renovation started to backfire in 2009. To clean up stores, it stopped carrying thousands of products. Shoppers went elsewhere to find them.

Another mistake was pricing. Last year, the company strayed from its "everyday low prices" slogan, the bedrock philosophy of founder Sam Walton. Instead, it slashed prices only on select products, and the deals were temporary. That confused shoppers.

Dollar stores, with parking lots and stores less than one tenth the size of those at most Wal-Marts, are winning over customers with convenience.

Wal-Mart is fighting back by working with suppliers to come up with smaller packages. It also plans to open smaller stores, but analysts say it is moving too slowly.

Duke said in a recorded conference call Tuesday that it would move forward "with even greater urgency in opening small stores".

Chief Financial Officer Charles Holley said Wal-Mart plans 30 to 40 smaller stores, half of them neighbourhood market stores.

Wal-Mart's profits and its international business, which accounts for 26 per cent of company revenue, remained a bright spot, and it expects growth in emerging markets to speed up.

Wal-Mart expects first-quarter earnings per share between 91 and 96 cents. Analysts expected 96 cents per share, according to FactSet.

The company also forecast that earnings for the year would be between US$4.35 and US$4.50 per share. Analysts expect US$3.67 per share.

- AP