World's largest retailer posts rise in quarterly profit, but sluggish U.S. sales lead to careful guidance.

Retail behemoth Wal-Mart reported a rise in quarterly profit Tuesday, but offered a cautious outlook for the coming year amid a struggling U.S. economy.

"No one has a crystal ball to look into the economic future, but we know the economy will be a critical factor this year," Wal-Mart CEO Lee Scott said in a recorded call discussing the retailer's results.

The world's largest retailer said that net income from continuing operations rose 4% to $4.1 billion, or $1.02 a share, in the fourth quarter. Excluding one-time charges and benefits, the company earned $1.04 per share, beating analysts' expectations by 2 cents a share.

But the retailer gave a weak outlook for the current period and coming year. Wal-Mart is closely watched as a barometer for the economy since consumer spending fuels two-thirds of economic growth.

The Bentonville, Ark.-based company said it expects first-quarter earnings to come in between 70 to 74 cents a share. That range is mostly below the consensus estimate of 74 cents a share that analysts are expecting for the period.

The retailer expects earnings for the year ending in early 2009 to be between $3.30 and $3.43 a share. Wall Street is forecasting full-year earnings of $3.30 to $3.55 a share.

"This isn't really a surprise," said Ed Weller, analyst at ThinkEquity Partners, who believes that the economic conditions warranted Wal-Mart's soft guidance.

"This is the primary reason why the government passed the stimulus package - so that Americans will have more money to spend."

Still, investors were pleased that Wal-Mart's profit margins held up in the quarter, despite the retailer chopping prices on its holiday merchandise, including 15,000 toys.

Wal-Mart (WMT, Fortune 500) shares edged higher in early trading.

The retailer's fourth-quarter net sales rose 8.3% to $106.3 billion, up from $98.1 billion in the same period last year, marking the first time a retailer's sales have ever topped $100 billion in a single quarter. Total revenue, including membership and other fees, totaled $107.4 billion.

Wal-Mart's strong quarter, which included the critical holiday season, was boosted by global sales but felt the impact of the slumping U.S. economy.

"We knew our customers would be stretched during the holidays," Scott said.

International sales rose nearly 19% in the quarter. By comparison, U.S. sales rose only 5%. Wal-Mart's warehouse operator Sam's Club posted a 6.3% gain in sales.

U.S. sales at stores open at least a year - a key indicator of a retailer's overall health also known as same-store sales - were sluggish, posting a 1.6% rise over the year-ago period. Excluding fuel costs, sales edged higher just 1.4%.

Despite outperforming its rivals, Wal-Mart has struggled alongside other retailers, as consumers have snapped shut their wallets.

"It's not just Wal-Mart," said Weller. "Every retailer has been posting weak same-store sales for months now."

Wal-Mart posted a weaker-than-expected 0.5% gain in January same-store sales while arch rival Target (TGT, Fortune 500) reported a 1.1% decline.

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"Some customers were a little more cautious about their spending in January," Scott said. "That is why we will continue to be diligent in improving our business in every way."

Other major retailers also are slated to report earnings soon, including J.C. Penney (JCP, Fortune 500) on Thursday, followed by Target and Sears (SHLD, Fortune 500) next week. 

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