Wal-Mart (WMT) is preparing to slash prices even more sharply as the economy slows. The Bentonville, Ark., retail giant posted a solid gain in fourth-quarter profit Tuesday, saying earnings for the quarter ended Jan. 31 rose to $4.1 billion,  or $1.02 a share, from the year-ago $3.94 billion, or 95 cents a share. Sales rose to $106.3 billion from $98.1 billion a year earlier. Excluding a 2-cent-a-share charge for what Wal-Mart described only as “certain items,” the latest quarter beat Wall Street’s expectations by 2 cents a share.

Wal-Mart has been slashing prices over the past year to boost traffic in its stores as the slowing economy crimps spending among its less-affluent customers. Even so, the company reported earlier this month that its January sales growth was just 0.5 percent in comparable stores, well below the expected 2 percent gain. Wal-Mart indicated in Tuesday’s press release that economic softness will continue to weigh on its results for fiscal 2009: Wal-Mart expects to post earnings of 70 to 74 cents a share for the first quarter and $3.30 to $3.43 a share for the year. Analysts had been looking for a profit of 74 cents a share for the quarter and $3.44 for the year.

“We know that the economy remains a critical factor in this new fiscal year,” CEO Lee Scott said. “Customers were more cautious in their spending in January. In a volatile economy, I believe we are well positioned to succeed. We will continue to strengthen our price leadership around the world.”

Wal-Mart (WMT) fell 4% in pre-market trading Thursday after the retail giant became the latest U.S. company to post weak January sales. Wal-Mart said sales in established stores rose just 0.5% from a year ago last month, a fraction of the expected gain. “Unfavorable weather negatively affected overall general merchandise sales, especially in the Midwest,” Wal-Mart said. “Gift card redemptions were below expectations, and customers appear to be holding gift cards longer and using them more often for food and consumables rather than discretionary purchases.” That’s a bad sign but in line with comments from Macy’s (M), which on Wednesday posted a 7.1% drop in January sales, and Nordstrom (JWN), which early Thursday posted a 6.6% comparable-store sales decline. Even Costco (COST), which posted a 7% same-store sales gain Thursday, said its 5% rise in U.S. stores was fueled in large part by the sharp rise of gasoline prices. Without bigger prices at the pump, Costco’s rise would have been just 3%. Hard times are here for many consumers - and for retailers.

Wal-Mart (WMT) is getting back to basics in its $30 billion clothing business. The nation’s biggest retailer is planning a shakeup of its apparel unit and the firing of “a significant number of workers” at its Bentonville, Ark., headquarters, The New York Times reports. Wal-Mart will move some 30 merchandising jobs to New York as it seeks to narrow its focus on basic clothes its customer base wants. Wal-Mart has tried in recent years to pull in more upscale consumers by offering more stylish clothing, but that effort met with limited success. The company’s Metro7 jeans, for instance, sold well in some urban stores but were rejected by Wal-Mart shoppers in most of the country. Now, the executive who led the upscale clothing push is gone, and Wal-Mart is looking to sell more brightly colored T-shirts, the Times reports. The new direction, as simple as it seems, certainly sounds like a better fit.

The holidays aren’t being kind to retailers. First, consumers spent even less than projected on Christmas gifts in a trend that hammered sales at chains such as Target (TGT). Now there are signs that Wal-Mart (WMT) - which had been looking like a rare winner in this year’s holiday sales slowdown - may have to play catch up on the expected surge in post-Christmas gift-card spending. The Associated Press reported Wednesday that a computer glitch was keeping Wal-Mart from processing gift cards. An internal investigation found that a “third-party verifier’s systems had an inadvertent processing error,” AP reports. Wal-Mart says it’s working to resolve the problem, but that’s all too familiar a claim at the image-challenged company. Whatever Wal-Mart says, customers who can’t cash in their gift cards aren’t going to be in a festive mood.