By Jessica Wohl
CHICAGO (Reuters) - Wal-Mart Stores Inc's attempts to fix sales at its U.S. discount stores are taking longer than expected as the world's largest retailer loses shoppers to lower-priced dollar stores.
The retailer reported its seventh straight quarterly decline in sales at U.S. stores open at least a year, posting a 1.8 percent drop that was much bigger than the company's worst expectations.
Wal-Mart shares fell more than 3 percent, despite reporting earnings that beat analysts expectations. U.S. sales are also still being hurt by a poorly executed decision, since reversed, to pare down the number of items Wal-Mart offers.
Dollar Stores such as Family Dollar Stores Inc and Dollar General Corp have gained appeal with shoppers on tight budgets by offering lower price points -- albeit for smaller quantities -- on goods such as detergent, especially as those shoppers run out of money at the end of the month.
Wal-Mart is tweaking its prices and product assortment, and it "will take time to see results," said CEO Mike Duke.
"What they are doing to everybody else, the dollar stores are doing to them," said Britt Beemer, president of America's Research Group. According to his research, 33 percent of U.S. consumers shop at dollar stores and 40 percent of Wal-Mart shoppers shop at dollar stores.
Wal-Mart is adding a broader assortment of smaller goods with lower prices to appeal to such patrons, Chief Financial Officer Charles Holley said.
Dollar stores are rapidly opening more locations and already have a stronger presence in urban areas that Wal-Mart is trying to enter. Shoppers must often drive further to Wal-Mart, an issue that is more pressing as gas prices rise.
Shoppers still did their big shopping trips at Wal-Mart, but it lost out on so-called "fill in" trips when shoppers buy items such as bread, milk or detergent that they need quickly.
The company said it expects its U.S. discount store same-store sales to be down 2 percent to flat this quarter.
Those results and expectations are in sharp contrast to company optimism in the fall, when Wal-Mart said fourth-quarter sales at its namesake U.S. stores open at least a year should rise, even though its official forecast suggested a decline of 1 percent to a rise of 2 percent.
"At the analyst day in October, Mike Duke made it very clear they were going to do a positive comp this quarter in Walmart U.S. and clearly (they) did not do that, so that was a disappointment," said Telsey Advisory Group analyst Joseph Feldman.
Wal-Mart shares fell 3.4 percent to $53.50.
SALES LIGHT, EARNINGS TOP EXPECTATIONS
While Wal-Mart has expanded into more than a dozen countries and is ripe for further international growth, the U.S. stores still represent the lion's share of its business.
More than 62 percent of its $418.95 billion in fiscal 2011 sales came from the U.S. discount stores, and sales in the unit are key to pleasing Wall Street.
Wal-Mart is still the biggest U.S. retailer, with more than 10 percent of total U.S. retail sales, though it is not growing as quickly as the overall market.
Aside from its own issues, Wal-Mart is also facing economic headwinds, with unemployment remaining stubbornly high and gasoline prices rising. The average U.S. price of gasoline rose more than 5 cents over the past two weeks.
The use of government assistance programs to pay for goods continues to rise, said Bill Simon, president and CEO of the Walmart U.S. business.
Simon said Wal-Mart would only pass along price increases when they cannot be avoided. It is working with suppliers to reduce inflationary pressure, where possible, on everything from food to clothing.
Wal-Mart earned $5.02 billion, or $1.41 per share, in the fourth quarter ended on January 31, up from $4.82 billion, or $1.26 per share, a year earlier.
Excluding one-time items, earnings were $1.34 a share, compared with the analysts' average estimate of $1.31, according to Thomson Reuters I/B/E/S.
Sales overall rose 2.5 percent to $115.6 billion, short of analysts' expectations of $117.7 billion.
Lower sales of electronics, coupled with reduced prices on goods such as televisions, pressured sales.
Wal-Mart reduced its fiscal 2012 U.S. capital expenditure budget by $1 billion, for a total of $6.5 billion to $7 billion.
It forecast per share earnings of 91 cents to 96 cents for the first quarter and $4.35 to $4.50 for the fiscal year.
