Image source: Wal-Mart Stores.

Wal-Mart Stores (NYSE:WMT) reported fiscal 2016 fourth-quarter results on Feb. 18. Store closings, slowing online sales, and a strong U.S. dollar are cutting into the retail titan's revenue and profits.

Wal-Mart Stores results: The raw numbers

Metric

Q4 2016

Q4 2015

Growth (YOY)

Revenue

$129.667 billion

$131.565 billion

(1.4%)

Net Income

$4.574 billion

$4.966 billion

(7.9%)

Earnings Per Share

$1.43

$1.53

(6.5%)

Source: Wal-Mart Stores Q4 2016 earnings press release.

What happened with Wal-Mart Stores this quarter?
Total revenue fell 1.4% to about $129.7 billion, as foreign exchange rate movements continue to dampen results. On a constant-currency basis, total revenue rose 2.2% to $134.4 billion.

U.S. comparable-store sales edged up 0.6% -- making Q4 2016 Wal-Mart's sixth consecutive quarter of positive comps -- as traffic increased 0.7%. The performance of Wal-Mart's smaller-format Neighborhood Market stores was particularly strong, with comps increasing 7%. These rising comps helped fuel a 2.4% year-over-year increase in Wal-Mart's U.S. sales to $81.5 billion.

However, the U.S. revenue gains were offset by a 9.7% decline to $32.7 billion in international sales, which saw a negative impact of $4.7 billion from foreign currency exchange fluctuations. On a constant-currency basis, Wal-Mart's international sales rose $3.3% to $37.4 billion.

Sales at Sam's Club declined 2.2% to $14.5 billion, but they were down only 0.1% when excluding the effects of lower gas prices.

More troubling is that Wal-Mart's online revenue growth is decelerating. Global e-commerce sales increased 8% on a constant-currency basis. That's down from growth of 10% in the third quarter and 22% in fiscal 2015.

Wal-Mart appears to be losing ground to e-commerce titan Amazon.com (NASDAQ:AMZN), whose sales jumped 22% in the fourth quarter and 20% in 2015. This, however, is unsurprising, as some estimates have Amazon accounting for more than half of all the growth in U.S. e-commerce sales over the past year.

Profit growth also remains a challenge. Store closures and wage increases led to a 16.4% (13.6% on a constant-currency basis) decline in Wal-Mart's consolidated operating income to $6.6 billion. Even after adjusting to exclude the effects of store closures and other non-recurring items, fourth-quarter earnings per share declined 7.5% to $1.49.

Cash flow and capital returns
Despite the sluggish sales and lower profits, Wal-Mart continues to generate enormous amounts of cash. Operating and free cash flow totaled $27.4 billion and $15.9 billion, respectively, during fiscal 2016.

That allowed Wal-Mart to return $10.4 billion to shareholders through dividends and share repurchases in the past year. Investors can expect more of the same in the year ahead, as Wal-Mart announced that it would be raising its dividend to $2.00 per share, a 2% increase, making fiscal 2017 the company's 43rd consecutive year of dividend increases.

Looking forward
For the first quarter, Wal-Mart expects to earn between $0.80 and $0.95 per share. And fiscal 2017 full-year earnings per share are projected be in the range of $4.00 to $4.30, which is largely in line with the 6% to 12% decline from fiscal 2016 that management forecast during Wal-Mart's investor day presentation in October.

However, Wal-Mart cut its full-year sales outlook, with net sales growth now expected to be "relatively flat" versus the company's prior guidance for growth of 3% to 4%. The effect of the store closures announced in January and a strengthening U.S. dollar were cited as the reasons for the reduced forecast.

Still, management remains optimistic.

"We're pleased with the way we closed out the year with a healthy balance sheet, strong cash flow, and solid returns to shareholders," said CFO Brett Biggs in a press release. "The investments we are making in our associates, our stores, and digital capabilities are better positioning Wal-Mart now and for the future."