Wal-Mart lost shoppers during the holidays

NEW YORK (CNNMoney) -- Despite aggressive price-slashing, free shipping and other gimmicks, Wal-Mart lost shoppers during the critical Christmas shopping period, resulting in a same-store sales decline in its fourth quarter.

Wal-Mart (WMT, Fortune 500), the world's largest retailer, reported an overall 1.1% decline in its same-store sales -- it's seventh straight decline in the quarterly measure, this time in the period that includes the key November-December gift-buying months.

Same-store sales, which measure sales at stores open at least a year, are an important gauge of a retailer's overall performance.

The discounter, which operates both its namesake discount stores and Sam's Club warehouse stores, said same-store sales declined 1.8% in its Wal-Mart U.S. stores.

"We are disappointed by Wal-Mart U.S. fourth quarter sales," Mike Duke, Wal-Mart Stores CEO, said in a statement.

Wal-Mart has struggled to lift sales at its discount stores for most of 2010, and has even lost market share to other value-priced and dollar store competitors.

In the run-up to Christmas, Duke expressed optimism about Wal-Mart's fourth-quarter sales, telling analysts he expected positive sales result in the fourth quarter.

That didn't happen. Wal-Mart blamed its U.S. sales shortfall to lower customer traffic even as the average amount that shoppers spent was up slightly versus the prior year.

Wal-Mart said food and health and wellness were the best-performing categories, with positive sales in the period.

In more troubling signs for the retailer, Duke said it will take some time for the company to see positive comparable sales.

"Some of the pricing and merchandising issues in Wal-Mart ran deeper than we initially expected, and they require a response that will take time to see results," Duke said.

For its first quarter, running through Apr. 29, Wal-Mart expects same-store sales to be flat to down 2%.

Wal-Mart's fourth-quarter income from continuing operations rose 4.3% to $5 billion in the three months ended Jan. 31.

Revenue climbed 2.5% to $115.6 billion. But the gains came from Wal-Mart's international operations.

Wal-Mart (WMT, Fortune 500) shares slipped 3.8% in morning trading on the New York Stock Exchange.

Fixing mistakes: Last year, Wal-Mart executives reiterated their commitment to fixing merchandising mistakes made while navigating through the recession.

Those errors, such as shrinking product variety and changing in-store layouts, proved to be costly for Wal-Mart's business because they limited customer choice, alienated Wal-Mart shoppers and hit sales.

Wal-Mart's sales benefited at the outset of the recession as consumers became more budget conscious and traded down to lower-priced necessities. But Wal-Mart's core shoppers, households in the $50,000 to $70,000 income bracket, are still struggling because of the economy.

Persistent long-term unemployment is also an overhang on most retailers' sales.

"For many [shoppers], their unemployment assistance has run out. In this environment, we should be thriving," Bill Simon, CEO of Wal-Mart U.S., said last October.

Instead, he said Wal-Mart had not been doing a good job in catering to the needs of its core shoppers. Therefore, Wal-Mart shoppers were going elsewhere.

Wal-Mart has implemented a four-step plan to rectify the problem that includes increasing product variety and improving product displays.

"We are confident that through these initiatives, we can improve sales throughout the rest of the year," Simon said Tuesday.

Looking at its current fiscal year, Wal-Mart expects first-quarter diluted earnings per share from continuing operations to be between 91 and 96 cents a share, up from last year's profit of 87 cents a share for the same period.

For the full year, Wal-Mart expects earnings per share from continuing operations to be between $4.35 to $4.50 a share, up from $4.18 in the year just ended.