Wal-Mart's 4Q Profits Rise 9.8 Percent

A shopper at a Wal-Mart in North Fayette, Pa., loads her purchases into her car on in this Jan 4, 2007 file photo. Wal-Mart Stores Inc. on Tuesday, Feb. 20, 2007 reported fourth-quarter profit growth of 8.8 percent to beat analyst estimates, and issued a bullish forecast for the year ahead. (AP Photo/Gene J. Puska, file) (Gene J. Puskar - AP)

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.

Those cost controls include a new scheduling system that matches staffing more closely to peak shopping hours, a decision to close layaway departments late last year and a reduction in the size of accounting offices at each store.

Critics have charged that the new scheduling system cuts hours for individual workers and requires too much flexibility from its employees. Detractors like WakeUpWalmart.com maintain that the company's decision to eliminate layaway programs hurts low-income shoppers by denying them the chance to buy an expensive item over time.

Meanwhile, Wal-Mart is achieving its goal of growing inventory at half the rate of sales. That has helped return on investment, a key metric that drives stock price, which rose at Wal-Mart's U.S. stores.

Merrill Lynch analyst Virginia Genereux said the cost-cutting measures would continue to help Wal-Mart's results this year.

"If apparel and home (same-store sales) materially improve this year, the stock should respond well," Genereux said in a research note.

Those two areas are where Wal-Mart had the most trouble last year, while electronics, food and pharmacy did well.

Charles Holley, executive vice president of finance at Wal-Mart Stores, said during the conference call that sales of apparel and home furnishings "continue to be softer than we would like."

Still, even some skeptical investors said they saw signs of improvement in the U.S. that complement Wal-Mart's growth overseas.

Fund manager Patricia Edwards, who has long been doubtful about Wal-Mart's ability to keep up with faster growing rivals like Target Corp., said the latest results contained "some signs that they might be getting it".

Edwards said the changes in strategy and costs at Wal-Mart U.S. may give the retailer momentum for growth in the year ahead. Edwards is a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares.

Don Gher, chief investment officer for Coldstream Capital Management, said Wal-Mart has overcome headwinds in the past year including remodeling projects that interrupted sales and an overly ambitious push into trendier women's apparel.

"The company moved back to basics by concentrating on discount pricing with less emphasis on high priced merchandise, with U.S. Superstore food sales, in particular, being a key performer," Gher said. Bellevue, Wash.-based Coldstream manages assets of about $1.1 billion, including Wal-Mart shares.

Shares of Wal-Mart rose $1.80, or 3.71 percent, to close at $50.28 on the New York Stock Exchange on Tuesday.