BENTONVILLE — Wal-Mart Stores Inc. reported a 27 percent 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 U.S. 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.
Shares fell $1.90, or more than 3 percent, to $53.48 Tuesday. Wal-Mart's stock has been slipping since the end of January as worries on Wall Street mounted over its fourth-quarter sales.
Wal-Mart posted net income of $6.06 billion, or $1.70 per share, in the quarter ended Jan. 31. That compares with $4.76 billion, or $1.25 per share, a year earlier.
Total revenue rose 2.4 percent to $116.3 billion. Net sales, excluding membership and other income, increased 2.5 percent to $115.6 billion.
Revenue at stores opened at least a year fell 1.1 percent, dragged down by a 1.8 percent drop at its namesake discount stores, which account for nearly two-thirds of its business. Analysts had expected a 0.8 percent increase, according to FactSet.
Excluding one-time items such as a tax benefit, earnings were $1.34 per share. Analysts expected earnings of $1.31 per share on net sales of $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 U.S. 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 emphasizing 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 percent decline at U.S. namesake stores is particularly weak because it comes on top of a 2 percent 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. Affluent shoppers became price-conscious and discovered Wal-Mart's prices were hard to beat.
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, the company 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. Wal-Mart 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 it plans 30 to 40 smaller stores, half of them Neighborhood Market stores.
At its U.S. discount stores, business was weak across many types of merchandise, including electronics, where prices have fallen. Its food business posted gains in the low single digits, and health and wellness products had increases.
But for the overall "consumables" category, which includes food and basic household items like paper goods, diapers and shampoo, the company suffered low single-digit declines. That category, which accounts for about 60 percent of Wal-Mart's sales, is the heart of dollar stores' business.
Holley said that the company has restored grocery items it had cut by the fourth quarter, but for general merchandise items like clothing, it would take the rest of the year. Late last year, company executives had said that would be finished by spring.
Wal-Mart said during the prerecorded call that rising inflation in raw materials such as cotton is pushing the company to consolidate suppliers to improve purchasing power.
Wal-Mart's profits and its international business, which accounts for 26 percent 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 $4.35 and $4.50 per share. Analysts expect $3.67 per share.