Wal-Mart Stores Inc. (WMT) on Monday posted its smallest quarterly profit gain since the 2001 U.S. recession, but said holiday prospects looked good despite steep energy prices that have hit consumer spending.

The 4 percent profit growth still matched Wall Street forecasts in a quarter marred by hurricanes that temporarily closed hundreds of stores and sent energy prices soaring. Analysts were also pleased that the retailer managed to contain labor costs, something it has struggled with recently.

Shares of the world's biggest retailer edged higher.

"Even with the lingering impacts of the hurricanes and the impact of higher energy prices, I believe we will have a good holiday season," Chief Executive Lee Scott said on a prerecorded call that was more upbeat than last quarter, when a gloomy forecast sent shares lower across the retail sector.

Bentonville, Arkansas-based Wal-Mart said net income rose to $2.4 billion, or 57 cents per share in the third quarter, which ended on October 31, in line with analysts' expectations. A year earlier, it earned $2.3 billion, or 54 cents per share.

Wal-Mart, which has vowed to cut prices aggressively and ramp up advertising this holiday season, said an improving U.S. economy and internal efforts to spruce up merchandise and stores raised its hopes for next year as well.

Results in the latest period include costs from hurricane-relief efforts, expenses from product-warranty programs and a gain from the settlement of Visa/MasterCard antitrust litigation. Taken together, those items hurt profit by 2 cents per share, or $80 million after taxes.

"We give Wal-Mart credit for its labor (cost) improvement in the quarter and hope this can continue," said Emme Kozloff, retail analyst with Sanford Bernstein.

Kozloff said the third quarter could represent the bottom in Wal-Mart's fundamental performance, but said that was already reflected in the stock price, which has risen some 16 percent from a nearly five-year low hit in September.

Quarterly sales rose 10.1 percent to $75.4 billion, while sales at its U.S. stores open at least a year -- a key retail measure known as same-store sales -- rose 3.8 percent.

Wal-Mart had said back-to-school sales were particularly strong as it slashed prices to lure customers.

Looking ahead, Wal-Mart forecast profit for the current quarter at 82 cents to 86 cents per share. Analysts on average expected 84 cents, according to Reuters Estimates.

The November-December holiday shopping season is the busiest period for Wal-Mart and other retailers, so Wall Street has been eager for insight into how consumer spending is looking in the face of rising energy bills.

The bright forecast comes four days after rival Target Corp. (TGT) gave what analysts viewed as a disappointing fourth-quarter outlook, in part because of expectations for a fiercely competitive holiday shopping season.

On the recorded call, Wal-Mart said early indications showed holiday sales looked good, particularly in key categories including electronics, toys and apparel.

"We're seeing the consumer back at the discretionary counters and that is good news for the entire industry," said Kurt Barnard, head of consultants Retail Forecasting Group.

Wal-Mart has been adding more upscale merchandise like high threadcount sheets and plasma televisions in the hope of attracting wealthier shoppers who are less sensitive to steep energy prices. The retailer has said that many of those customers are already shopping at Wal-Mart for food, but go elsewhere for clothing or home decor.

The strategy puts Wal-Mart on a collision course with Target, which has found a niche selling trendy-but-affordable clothing and home decor.

Target's sales have been growing faster than Wal-Mart's in recent quarters, and that trend may continue through the holiday season. Target expects fourth-quarter same-store sales to be up between 4 percent and 6 percent, while Wal-Mart forecast a more modest 3 percent to 5 percent increase.

Shares of Wal-Mart edged up 28 cents, or 0.6 percent, to $49.28 in New York Stock Exchange trading.

Wal-Mart's shares are down about 7 percent year-to-date amid concerns about slowing growth and a pile of lawsuits accusing the company of mistreating workers. By contrast, Target's stock is up more than 12 percent in that time.