Recent U.S. cuts in federal food stamps for the working poor and unemployed has led Wal-Mart Stores Inc to lower the forecast for its full-year profits.

The world’s largest retailer still expects net sales growth of three to five per cent this year.

But less food stamp aid, higher taxes and tighter credit are eroding its grocery sales, as its low-income customers struggle to get by on less.  As many as a fifth of Wal-Mart's customers rely on food stamps, according to one analyst quoted by Reuters.

The U.S. Farm Bill passed earlier this month cut food stamp access and the budget agreement reached earlier this year enshrined fewer benefits and higher taxes for lower-income Americans. A temporary boost in food stamps expired Nov. 1 of last year.

Comparable sales at stores open at least a year in the U.S., fell for a fourth straight quarter, by 0.4 per cent, led by a decline in grocery sales.

Comparable sales also fell in key markets such as Canada and Britain, with severe winter weather and intense competition in the holiday period hitting Wal-Mart hard.

Wal-Mart forecast profit of $5.10 to $5.45 US per share this year, below analysts forecasts of about $5.54 a share. Wal-Mart earned $4.43 billion, or $1.36 per share, in the quarter that ended Jan. 31, down 21 per cent from $5.6 billion, or $1.67 per share, a year earlier.

Wal-Mart stock was down $1.33 or 1.8 per cent to $73.52 at the close of trading.

The retailer’s revenue in the quarter ending January 31, which includes the key holiday season, grew 1.4 per cent to $129.7 billion.

Wal-Mart has been criticized for the low wages it pays its workers, many of whom must turn to federal income support programs to get by.

In an effort to extend its reach into more neighbourhoods, Wal-Mart is proposing to open 270 to 300 smaller stores this year. It has already experimented with smaller format stores and found same-store sales at those locations rose by five per cent in the past year.

“Customers’ needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” said Bill Simon, Wal-Mart U.S. president and CEO.

“Customers appreciate the broad assortment of our supercentres for their stock-up trips as well as our small store formats for fill-in trips.”

Wal-Mart also plans a strategy of deeper discounting in an attempt to woo more customers, a strategy that could up the ante in the grocery wars. Grocery retailers are becoming more diversified and are pressuring suppliers to lower prices in the hope of remaining competitive.

With files from Reuters