Wal-Mart's 4Q Profits Rise 9.8 Percent

Wal-Mart Stores Inc. reported on Tuesday a better-than-expected 9.8 percent increase in fourth-quarter profits, helped by new strategy and cost-control measures at its flagship U.S. stores division.

But the world's largest retailer still faces the challenge of reinvigorating sales at its U.S. stores amid fierce competition, analysts said.

"They're getting some traction, but they've still got a lot of work to do," said Stephanie Hoff, senior retail analyst at Edward Jones.

While profits and total sales were up around 10 percent each, Hoff noted that sales

at stores open at least one year, a key measure of retail performance, only grew 1.3 percent in the fourth quarter after annual rates well over 5 percent early this decade.

Wal-Mart forecast same-store sales growth between 1 and 3 percent in the current quarter.

"Those numbers will have to get stronger and be at the 3 percent end of the (forecast) range for investors to be willing to pay a higher premium for the stock," Hoff said.

Wal-Mart said profit for the period ending Jan. 31 was $3.94 billion, or 95 cents per share, up from $3.59 billion, or 87 cents, from one year prior. Even without a $98 million tax benefit worth 2 cents per share, Wal-Mart's earnings beat the 90 cents per share forecast by analysts surveyed by Thomson Financial.

The company had fourth-quarter sales of $98.09 billion, up 10.9 percent from a year before but below the $99.95 billion forecast by analysts.

Wal-Mart said it expects per-share earnings of between 68 cents and 71 cents in the first quarter and between $3.15 and $3.23 for the fiscal year 2008. Analysts surveyed by Thomson Financial were forecasting 68 cents for the first quarter and $3.19 for the year ahead.

Chief Executive Lee Scott singled out Eduardo Castro-Wright, president of Wal-Mart's U.S. stores division, for his initiatives in strategy and in cutting costs for labor and inventory in Wal-Mart's largest business. The U.S. stores account for nearly 70 percent of total group sales, followed by Wal-Mart International and Sam's Club membership warehouses.

Scott praised the strategy launched last year by Castro-Wright, who has returned Wal-Mart to deep discounts on items like electronics and holiday toys after a brief foray into trendier merchandise. At the same time, Castro-Wright has started a three-year effort to tailor stores more closely to local demographics.

"I believe in the strategic plan that is guiding our U.S. stores," Scott said in a recorded conference call for investors.

Castro-Wright also spearheaded inventory reduction and cost cutting last year, allowing U.S. store operating profits to grow 11.3 percent in the fourth quarter, ahead of sales growth of 6.7 percent.