Jan. 12 (Bloomberg) -- Wal-Mart Stores Inc. Chief Executive Officer H. Lee Scott, who plans to retire this month, said the world’s biggest retailer had a “tough Christmas” and he doesn’t expect business to improve soon.

Consumers are increasingly frugal and may not quickly resume spending when the recession ends, Scott, 59, told the National Retail Federation’s annual convention in New York today. He said the first half will be “extraordinarily challenging.”

Wal-Mart shares fell 7.5 percent Jan. 8, their biggest drop in almost three months, after the company said fourth-quarter profit will miss its forecast and predicted January revenue may be little changed as customers curb spending globally.

“We have all had a tough Christmas,” Scott said in his final planned speech as CEO. He said he’s unconvinced that consumers are going to have the “immediate desire to go back to consumption and debt as the economy recovers.”

Wal-Mart’s own merchandise buyers are trimming discretionary spending, said Scott, who recently met with a group of them.

“Some people are giving up eating out; some people are giving up movies; some people are giving up other things like shopping,” Scott said. “And they were talking about how good they felt about doing that. Those are fundamental changes that will continue.”

Economic Stimulus

Wal-Mart fell 19 cents to $51.39 at 4:04 p.m. in New York Stock Exchange composite trading. The stock climbed 18 percent last year.

Falling fuel prices and the possibility of additional economic stimulus by the U.S. government may help consumer spending, Scott said.

“The second half of the year, we hope it will be better,” he said. If this year’s holiday sales improve from 2008, they may be “modestly better,” he said.

Scott’s assessment reflects tightening credit and record home-mortgage foreclosures. The collapse of the U.S. mortgage market last year has led to the worst credit crisis in seven decades, sent the U.S. economy into recession and triggered writedowns and losses at financial institutions exceeding $1 trillion.

“Consumers are not going to go back to their free-spending ways because it was built on artificial credit,” Maggie Gilliam, president of New York-based advisory firm Gilliam & Co., said in an interview following Scott’s speech.

Groceries, Flat-Panel TVs

Wal-Mart’s CEO announced his retirement in November as the company was poised to become last year’s top performer among the 30 stocks in the Dow Jones Industrial Average. He has credited his executives, who discounted groceries and flat-panel TVs to revive U.S. sales as he focused on cutting energy waste, lowering drug costs and taking other steps to burnish the company’s reputation.

Sales from U.S. stores open at least a year increased 1.7 percent last month, below analysts’ estimates. For January, revenue will be unchanged to 2 percent higher. Profit in the quarter through Jan. 31 will be 91 cents to 94 cents a share, down from a November projection of $1.03 to $1.07.

Macy’s Inc., Limited Brands Inc. and Gap Inc. were also among companies that lowered earnings forecasts last week after rising unemployment and tightening credit led shoppers to rein in purchases. The spending cutbacks spawned the worst holiday sales in four decades, according to the International Council of Shopping Centers.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net.

Last Updated: January 12, 2009 16:04 EST