Further evidence of retailers’ tough holiday is beginning to come to light — and firms aren’t particularly bullish about 2014.
Both Wal-Mart Stores Inc. and Nordstrom Inc. saw their shares fall after the two retailers reported declines in net profits for the fourth quarter, a result of the bruising promotional environment during holiday and the winter storms that buffeted much of the U.S. in January.
Wal-Mart Stores Inc. shares dropped 1.3 percent to $73.52 after it gave a bearish outlook for fiscal 2015 in reporting that net profits for the fourth quarter fell 21 percent. Nordstrom’s shares dipped 0.5 percent to $58.95 in after-hours trading on the New York Stock Exchange after the department store chain said fourth-quarter net profits fell 5.6 percent.
“We expect economic factors to continue to weigh on our outlook,” Wal-Mart chief financial officer Charles Holley said on a conference call with analysts, noting first-quarter guidance of $1.10 to $1.20 a share, lower than the $1.24 expected by analysts. The economic concerns, said Holley, “combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or a faster rate than sales.”
In October, Wal-Mart forecasted a 3 percent to 5 percent net sales increase for fiscal 2015. “Given these factors and the ongoing headwind from currency exchange, we expect to be at the low end of the net sales guidance,” Holley said.
In addition to the less optimistic outlook, retail analysts weren’t happy to hear that Wal-Mart is planning big investments this year. “Wal-Mart communicated some serious challenges to the retail community for 2014,” said David Strasser of Janney Capital Markets in a research note. “First, the company is doubling the number of small-format stores and will increase capex by $600 million to fund this accelerated growth. This, combined with comments from new [chief executive officer] Doug McMillon about being a customer-centric business first and foremost, makes us believe that the company will be in an investment mode in 2014 to drive market share, which will likely hurt profitability.”
Wal-Mart originally said capital expenditures would range between $11.8 billion and $12.8 billion for the year. On Thursday, the retailer updated the range to $12.4 billion to $13.4 billion.
Holley said full-year earnings per share from continuing operations in fiscal 2015 will be in the $5.10 to $5.45 range. This compares to a reported EPS of $4.85 in fiscal 2014.
McMillon called out the small-store formats, Neighborhood Stores and Wal-Mart Express, which are primed for an accelerated rollout. For 2015, Wal-Mart is now planning to open 270 to 300 small-format stores, up from the 120 to 150 stores it announced in October. “We currently have over 4,200 stores and will grow that significantly this fiscal year,” said Bill Simon, president of Wal-Mart U.S. “Our full fleet will serve as the physical access points for our digital business combining these two worlds in a unique way.”
There’s “transformative” growth ahead for e-commerce as the world’s largest retailer aims to compete better against Amazon.com. Over the past year, Wal-Mart has invested more significantly to improve the customer experience and fulfillment capacity. Cycle times on e-commerce related to capital investments are much more fluid than those for stores, so Wal-Mart can move faster and make quicker decisions, McMillon said. Annual global e-commerce sales reached above the $10 billion mark, a 30 percent increase that includes sales from Yihaodian, Wal-Mart’s Japanese acquisition.
On Thursday, Wal-Mart said profits fell in the fourth quarter to $4.43 billion from $5.61 billion, although adjusted earnings of $1.60 a share were a penny higher than analysts’ expectations. Total revenues rose 1.5 percent to $129.7 billion, from $127.8 billion, slightly under the $130 billion predicted by analysts.
For the fourth quarter, Wal-Mart reported diluted EPS from continuing operations of $1.34 compared to $1.67 in the fourth quarter of last year.
Consolidated net sales for the fourth quarter increased 1.4 percent or $1.8 billion to $128.8 billion from $127 billion.
For the full year, net profits fell to $15.92 billion from $16.96 billion on sales of $473.07 billion, versus $465.6 billion.
McMillon, who became ceo three weeks ago, presided over the call, saying that Wal-Mart added $11.9 billion in net sales on a constant currency basis this year to reach more than $477 billion, an increase of 2.5 percent over last year. This excludes the negative impact of more than $5 billion from currency exchange rate fluctuations and an approximately $730 million benefit from acquisitions. “While we made operational adjustments to lower our expense base, they were not sufficient to deliver leverage for the full-year,” McMillon said.
Wal-Mart U.S. added almost $5 billion in annual net sales. McMillon blamed the weather for the back half of the fourth quarter, which resulted in a comp-store sales decrease of 0.4 percent. Consolidated net sales for the year ended Jan. 31 were $473.1 billion, an increase of $7.5 billion or, 1.6 percent over last year’s $465.6 billion.
Capital expenditures for the year were $13.1 billion, slightly above the $12 billion to $13 billion range Wal-Mart projected, primarily due to the opening of small-format stores in the U.S. For the year, Wal-Mart added about 32.6 million square feet of retail space with 529 net new expanded and relocated units.
Net sales including fuel at Sam’s Club were $14.7 billion, up 1.3 percent over last year. Comps increased 0.7 percent.
Wal-Mart International delivered solid constant currency net sales of $141 billion, including more than $39 billion of constant currency net sales in the fourth quarter. On a reported basis, international net sales were $37.7 billion, down 0.4 percent with currency exchange fluctuations unfavorably impacting sales by about $1.8 billion. For fiscal 2014, reported net sales were $136.5 billion, a 1.3 percent improvement over last year. Currency exchange fluctuations negatively impacted sales by about $5.1 billion. On a constant currency basis net sales increased 4.6 percent.
Nordstrom said profits in the fourth quarter ended Feb. 1 fell to $268 million, compared with $284 million for the year-ago quarter.
Nevertheless, the Seattle-based upscale department store cracked $12 billion in annual sales for the first time, amid strong performances by the Rack off-price chain and Nordstrom Direct, while the full-line stores were generally soft.
“It was a year in which customers clearly demonstrated increasing desire for speed and convenience, whether online or in stores,” said ceo Blake Nordstrom, during a conference call Thursday. “The pace of change is accelerating more than we anticipated a year ago.”
In the fourth quarter, full-line same-store sales decreased 3.3 percent; direct sales increased 30 percent, and total Rack sales rose 10.2 percent.
Total company same-store sales were up 2.6 percent, while net sales of $3.6 billion were flat. Gross profit, as a percent of net sales, decreased 55 basis points due to increased markdowns.
For the year, net sales rose 3.4 percent to $12.2 billion, compared to $11.8 billion the year before. Net earnings were essentially flat, reaching $734 million compared to earnings of $735 million in 2012.
For 2014, the company projects a 2 to 4 percent increase in same-store sales and earnings per diluted share of $3.75 to $3.90. For the first quarter, earnings are seen between 60 cents and 70 cents, compared with 73 cents in last year’s quarter. Costs associated with building stores and infrastructure in Canada, the ongoing rollout of Rack, three full line store openings this year in North America and increased technology spending will impact the bottom line. Capital expenditures this year are seen at between $840 million and $880 million, compared with $714 million last year.
Among the highlights of 2013:
• Nordstrom Direct finished its third consecutive year of at least 30 percent top-line growth, with 1 million new customers acquired online.
• Women’s apparel continued to experience positive momentum, abetted by Topshop openings in the Savvy area, strength in the Studio department with bridge prices and classic styles and the Individualist contemporary department, but Brass Plum juniors stayed difficult.
• Inventories were at an appropriate level at year end, and the level of clearance inventory was the lowest in five years.
Among the initiatives and changes ahead:
• Nordstrom’s first full-line store in Canada will open in Calgary in September; Canada is seen as a $1 billion revenue opportunity.
• Rack will open 27 locations in fiscal 2014, with 230 projected by 2016 from the current 140.
• Online will remain its fastest growing channel.
To improve the full-line experience, Nordstrom officials said that big national brands will be pumped up with greater “breadth and depth” to ease the navigation. Increases in activewear offerings are seen too.
They also cited increasing personal stylists, mobile kiosks and tablets for mobile POS to further elevate the shopping experience.
Officials also pointed to a reduced reliance on half-yearly clearance sales, partly because of efforts at timelier markdowns. However, the Anniversary Sale in July will continue to grow in importance.