Consumer comeback skips Wal-Mart's aisles

NEW YORK — Wal-Mart is missing out on the consumer comeback.

The world's largest retailer failed to reverse an almost two-year slide in a key revenue measure in its fourth quarter, it said Tuesday, after all but promising in November it would do just that.

Outside its aisles, holiday shoppers spent more, and consumer confidence is now at its highest point in three years. Wal-Mart had fewer customers.

Wal-Mart's mistakes in merchandising and pricing, along with financial stress on its lower-income customers, forced it to rely on international growth and cost-cutting to post a 27 percent increase in net income in its fourth quarter.

Wal-Mart's 1.8 percent decline in revenue at U.S. discount stores open at least a year, its seventh straight quarterly drop, was worse than feared. That important measurement of a retailer's health excludes stores that open or close during the year.

"Wal-Mart's holiday season was lackluster compared to everyone else," said Ken Perkins, president of research firm RetailMetrics. "This might be a deeper hole to dig out than (Wal-Mart) had thought."

For the past year, the discounter has seen customer counts decline as it lost shoppers to rivals like dollar stores for quick trips to buy milk and diapers. Wal-Mart had hoped sweeping changes, from restoring thousands of products it cut and going back to offering low prices across the store, would help sales rise again.

It's now clear there won't be a quick fix.

Wal-Mart's sprawling one-stop shopping format is facing challenges because shoppers are changing the way they buy. They're buying closer to when they need things and "are happy to make multiple trips" to smaller, more convenient stores to get the best value, UBS analyst Neil Currie said.

Wal-Mart is working with suppliers to develop products in smaller sizes and plans to open 30 to 40 stores this year that are one-sixth the size of a typical Wal-Mart. Analysts say it needs to do more.

Wal-Mart's disappointing holiday report stood in contrast to positive reports Tuesday from Home Depot Inc., which posted its first yearly revenue increase since 2006, and Macy's Inc., whose 50 percent profit increase was helped by strong holiday sales and a tight hold on expenses.

Also Tuesday, The Conference Board said consumer confidence hit its highest level in three years in February as Americans feel more optimistic about their income prospects and the economy.