* Q4 EPS $1.44 excluding items vs Wall St view $1.45
* U.S. division same store sales up 1.5 pct
* Shares down 4 pct
By Jessica Wohl
Feb 21 (Reuters) - Wal-Mart Stores Inc's holiday price cuts hurt its fourth-quarter profit and it plans to offer more discounts in the coming months, a move that is expected shrink margins further.
The company's shares, up more than 29 percent since August, fell 4 percent in early trading as quarterly profits and sales fell short of Wall Street expectations. While the price cuts in the U.S. helped bring in more customers, those customers did not spend as much as investors had hoped.
Walmart U.S., the company's biggest division, has been lowering prices and bringing back a wider variety of items to woo shoppers on limited budgets who started to shop at dollar stores and elsewhere.
Traffic at those stores rose after six quarterly declines, showing that such efforts, as well as bringing back a holiday layaway plan, brought in shoppers.
"The market wanted Wal-Mart to begin to transition to a land of stronger profits per sales in the fourth quarter and then project that trend becoming more self-sustaining" this year, said Brian Sozzi, chief equities analyst at NBG Productions. "On both scores, there was disappointment to be found."
Walmart U.S. posted a 1.5 percent increase in sales at stores open at least a year. It was the second quarter in a row that Walmart U.S. same-store sales rose after nine consecutive quarterly declines.
Analysts on average had expected a rise of 1.8 percent, according to Thomson Reuters data. Wal-Mart expected Walmart U.S. same-store sales would be flat to up 2 percent, compared with a 1.8 percent drop a year earlier.
Operating income growth at Walmart U.S. grew at a slower rate than sales. Gross profit margin declined as the company made investments in its pricing strategy.
Shares of Wal-Mart were down $2.50 or 4 percent, at $59.98.
EXPECT MARGIN DECLINE
Wal-Mart is optimistic that employment reports will continue to improve, which could boost consumer confidence. But higher gas prices are pressuring shoppers' limited budgets.
The company warned investors that they should expect margins to decline as it cuts prices.
Wal-Mart earned $5.19 billion, or $1.51 per share from continuing operations attributable to the company, up from $5.02 billion, or $1.41 per share, a year earlier.
Excluding about 7 cents per share from certain tax matters and real estate transactions, Wal-Mart earned $1.44 per share. The company had forecast a profit of $1.42 to $1.48 per share, which did not include the benefits.
Analysts, on average, expected it to earn $1.45 per share, according to Thomson Reuters I/B/E/S.
Sales rose 5.8 percent to $122.29 billion, below the average analyst estimate of $124.21 billion.
Same-store sales rose in all Walmart U.S. categories except for apparel. A mild winter has crimped demand across the industry for items such as coats and sweaters.
Wal-Mart forecast first-quarter earnings per share from continuing operations attributable to the company of $1.01 to $1.06, compared with a profit of 98 cents per share a year earlier, which included a lift of 1 cent from multiple items. Analysts on average forecast $1.05 a share.
The company expects Walmart U.S. same-store sales to be flat to up 2 percent in the first quarter.
It forecast fiscal year earnings per share from continuing operations attributable to the company of $4.72 to $4.92. In fiscal 2012 it earned $4.54 per share including 5 cents of benefits.
Wal-Mart's international business grew at a faster clip than the larger Walmart U.S. Operating income at Walmart International rose 15.2 percent to nearly $2.31 billion, while Walmart U.S. operating income rose 1.4 percent to $6.11 billion.
International results were mixed. Britain's Asda saw sales growth slow from the third quarter. Wal-Mart de Mexico, or Walmex, topped analysts' expectations as it opened more stores.
On Monday, Wal-Mart said it was taking a controlling stake in Chinese e-commerce company Yihaodian to expand its international reach.