Wal-Mart Stores Inc posted a drop in holiday sales at US stores and gave a disappointing profit outlook, casting doubt on its ability to keep shoppers won in the recession.

The world’s largest retailer enjoyed sales growth and higher traffic in the depth of the US downturn as consumers sought bargains. But as confidence picks up, shoppers may be heading back to Wal-Mart rivals.

“The fact that their discretionary sales remained under pressure while improving at other retailers lately, investors are likely to question if people are trading back up,” said Telsey Advisory Group analyst Joseph Feldman.

Wal-Mart shares fell 1.6 per cent yesterday.