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(Wal-Mart article updated with analyst commentary.)



) -- While


(WMT) - Get Walmart Inc. Report

easily topped fourth-quarter expectations, U.S. comparable sales fell for the third quarter in a row and the discounter provided guidance that could fall short of outlooks.

As a result, shares of Wal-Mart are dropping 1.7% to $53.16 in pre-market trading.

During the quarter, Wal-Mart earned $4.63 billion, or $1.21 a share, compared with $3.8 billion, or 96 cents, in the year-ago period.

Excluding items, Wal-Mart actually earned $1.17 a share, easily topping analysts' estimates of $1.12 a share.

Sales grew 4.4% to $113.6 billion, missing Wall Street's forecast of $114.4 billion. And U.S. same-store sales, a key measure of the company's health, fell 1.6%. By division, comparable sales at Wal-Mart stores declined 2% and grew 0.7% at Sam's Club.

This is the first drop in Wal-Mart U.S. same-store sales on record, CFO Thomas Schoewe said in a conference call. It comes as the company rolled down prices and cut inventory over the holiday season.

Schoewe attributed the decline to difficult comparisons from last year, deflation in food and electronics and an impact in Wal-Mart traffic due to store renovations related to its "Project Impact" initiative.

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This was the first real look inside Wal-Mart's holiday business, as the discounter no longer reports monthly sales results.

The fourth-quarter was partially saved by international sales, which rose 19.5% to $29.6 billion.

During the quarter, Wal-Mart continued to cut costs, consolidating some of it sourcing with Chinese exporter Li & Fung and slashing 300 administrative jobs earlier this month at its headquarters.

Looking ahead, Wal-Mart management predicts first-quarter earnings in the range of 81 cents to 85 cents a share, versus analysts' consensus of 85 cents. For the full year, Wal-Mart is calling for earnings between $3.90 and $4 a share.

"U.S. sales will be more challenging in the first quarter, as Wal-Mart U.S. cycles through strong year-over-year comparisons and deflation," CEO Mike Duke said in a statement.

Despite some of the negatives, Wall Street Strategies analyst Brian Sozzi is still bullish on the stock. He says profit metrics were the real takeaways, as adjusted operating income advanced faster than sales at all divisions.

"We believe Wal-Mart is entering the next phase of its transformation, one that will help bring gross margin and operating margin to previously unforeseen levels, as further costs are wrung from an already efficient operating model and international growth ramps," Sozzi wrote.

Sozzi predicts fiscal 2011 earnings will surpass guidance.

-- Reported by Jeanine Poggi in New York.

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