Social unrest in Chile, a legal matter, and the abbreviated holiday season weighed on Walmart Inc.‘s fourth-quarter financial results. The retail and digital behemoth missed analyst estimates and also issued a profit outlook for 2021 that was below expectations.
But while admitting the results were somewhat disappointing, chief executive officer Doug McMillon joined his executive team in addressing the investment community and unveiling a raft of new revenue streams, initiatives and technology innovations.
“Despite not finishing as strongly as we would have liked, I’m pleased with our progress,” McMillon said. “We’ve made strategic choices and we’re glad that investors have been rewarded. We used to open hundreds of stores in the U.S., but they struggled to gain traction. Today, we’re opening fewer stores.
“A lot changed,” he added. “Today, we’re testing self-driving cars and robots.”
Walmart has been experiencing growing pains as it continues its transformation itself into a digital company. Conversational shopping service Jetblack — the first portfolio company to be launched by Walmart’s ring-fenced technology incubator — is being integrated into the broader business.
“We haven’t invested [further] in Jetblack because of the traction we’re gaining in Walmart.com,” said McMillon. “We made that pivot and made the investment in Flipkart. We have a global e-commerce business that will reach $50 billion this year from $8 billion three years ago. Now we’re in a position to play offense with the omnichannel game. We’re turning the portfolio into a Next Gen flywheel.”
Walmart has been racing to build out the apparel and home categories on its e-commerce site. McMillon admitted that they weren’t given enough attention at stores and SuperCenters, where grocery was overemphasized during the quarter.
“The apparel contribution is one of the areas where we fell short,” the ceo said, referring to the fourth-quarter results. “What we think happened is we got too focused on opening price points and seasonal Christmas apparel. We could have been more basic and had more in the mid-price range. We have to improve the assortment. We have a big opportunity to sell a lot more apparel online.”
Walmart has had some success with higher-priced apparel online, particularly on its Marketplace, which includes third-party vendors. “We’ve had some success with Scoop. We need both in store and e-commerce. We’ve had increased apparel sales online,” McMillon added. “Apparel is growing faster than the total online sales. Apparel and home [are strong], we just need even more from them. I don’t think we’ve done everything we could to support Marketplace sellers. We’ve grown it to a good size, but there’s still a lot of upside for us. It’s not big enough.”
In October, Walmart sold Modcloth to Go Global Retail. It was one of the digital native brands acquired following Walmart’s 2016 purchase of Jet.com. Marc Lore, founder of Jet who joined the retail giant as ceo of U.S. e-commerce, said acquisitions such as Shoes.com, Art.com and Hayneedle.com have added category expertise and improved customer choice.
“Eloqui and Bonobos have a soul,” McMillon said. “You’ve seen us do it with Scoop in fashion, and Allswell in mattresses. They started off with just a little bit of capital and will reach $100 million in sales. Allswell was the ‘Aha moment’ for us. We’re integrating digital native brands into Walmart.com, and will keep moving in that direction.
“As we’re starting to break more premium brands — Scoop is a great example, as are Eloqui and Bonobos — a lot of folks are new to Walmart and walmart.com. There’s a move to a member whose income is $100,000,” he said.
While speaking of higher-end brands, McMillon made a reference to Nike, which was an indication of the difficulty Walmart has in securing national brands of that caliber. “We don’t carry Nike yet in Walmart stores,” he said. “I hope they’re listening.”
McMillon said Walmart is realizing “that in an omnichannel world, our opportunities to serve customers expands beyond what we’ve done before. Health and financial services and advertising have the potential to be significant revenue generators. Our business is changing along with the expectation that $1 of every $8 of international revenue will come from e-commerce. In every market, customers are pivoting toward the future.
“Advertising has grown faster than sales, and will continue to grow faster than sales,” McMillon said of Walmart’s move into third-party advertising along the likes of rival Amazon and Google. “We won’t have it pollute the customer experience online or in the stores. We’re choosing not to make a big investment in digital entertainment. We can have partnerships in the digital entertainment space. We have a history of enabling people to win at Walmart and we think that can be done with all kinds of people, not just suppliers.”
“We have the ability to serve customers with health services in 5,000 communities,” said John Furner, ceo of Walmart U.S., referring to the retailer’s stores. “When consumers are in the store and want to finance an item, we can help with that. They need to close all those transactions. We’ve got a big base and a lot of data to make consumers’ lives easier.”
“We have a membership program for unlimited grocery delivery for an annual fee of $98, or $12.95 per month, including same-day, from our SuperCenters. We’re learning about it,” he added.
Retail analysts were predicting more positive results during the quarter for Walmart, despite the performance of its peers and the fact that the holiday selling season was shorter than usual. J.C. Penney Co. Inc. and Kohl’s last month reported that comparable sales for the two-month holiday period declined 7.5 percent and 0.2 percent, respectively. Those results came a day after Macy’s said its comp sales for the holiday period fell 0.6 percent.
Net income in the fourth quarter ended Jan. 31 rose to $4.14 billion, or $1.45 a share, versus earnings of $3.69 billion, or $1.27 a share, in the year-ago quarter. Adjusted earning per share of $1.38 missed the $1.44-a-share forecast by analysts.
Sales rose $141.67 billion, a 2.1 percent increase over $138.8 billion in the year-ago fourth quarter, but below analyst estimates of $142.5 billion. Sales for the year rose 1.9 percent to $520 billion, from $510 billion.
Comp-store sales in the fourth quarter increased 1.9 percent, while Walmart U.S. e-commerce sales rose 35 percent, the slowest gain in nearly two years. Digital sales are expected to grow only 30 percent in the fiscal year, versus the prior year’s 37 percent gain.
Walmart said disruption in Chile and a legal matter lowered EPS by about $0.05. Fiscal year 2020 EPS came in at $5.19, and GAAP, $4.93. The retailer’s guidance for fiscal year 2021 includes net sales growth of about 3 percent in the U.S., comp-store sales growth of at least 2.5 percent, U.S. e-commerce net sales growth of about 30 percent, and EPS in the range of $5 to $5.15.
Walmart’s fiscal 2021 capital expenditure of about $11 billion will largely be used for remodeling stores and adding pickup and delivery capabilities. “Just a few years ago, we didn’t have any stores with online grocery pickup and delivery services,” said Brett Biggs, executive vice president and chief financial officer. “We now offer grocery pickup at 3,200 stores. At Sam’s Club, we have Scan and Go [for checkout].”
Besides Chile, and continued softness in the U.K., Walmart’s international business was lead by Walmart de Mexico, which delivered a comp-store sales increase of 5 percent. Walmart’s China business is experiencing double-digit growth. Said Judith McKenna, ceo of Walmart international, “They’re opening cloud depots, low-cost mini distribution nodes that expend online purchases to receive orders in less than one hour. We have 60 of those operating.
Flipkart and Phonepe were acquired 18 months ago. “We’ve been really pleased with Flipkart,” McKenna said. “The health of the platform is strong. Indian customers are tracking 1 billion visits per month and transactions per customer increased by 50 percent. Phonepe wants to be India’s largest payment platform and is accepted by 10 million merchants.”
Walmart shares closed up $1.74, or 1.48 percent, to $119.63, after the market close on Monday on the New York Stock Exchange.