Wal-Mart reported a better-than-expected 9.8 percent increase in fourth-quarter profit yesterday, 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 that have 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.

Profit and total sales rose about 10 percent, but Hoff noted that sales at stores open at least one year, a key measure of retail performance, grew only 1.3 percent in the fourth quarter.

Wal-Mart forecast same-store sales growth between 1 and 3 percent for 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 quarter ended Jan. 31 was $3.94 billion, or 95 cents per share, up from $3.59 billion, or 87 cents, in the comparable period a year earlier. 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 less than the $99.95 billion forecast by analysts.

Chief executive H. Lee Scott Jr. singled out Eduardo Castro-Wright, president of Wal-Mart's U.S. stores division, for 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.

Last year, Castro-Wright returned Wal-Mart to deep discounts on such items as electronics and holiday toys after a brief foray into trendier merchandise. He also spearheaded inventory reduction and cost-cutting, increasing U.S. store operating profits 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 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 such as 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.

Shares of Wal-Mart rose $1.78, or 4 percent, to close at $50.26 yesterday on the New York Stock Exchange.