Walmart Inc. on Tuesday provided good news for the U.S. retail sector, reporting its best quarterly results in recent years, including comparable-store sales growth of 4.2 percent, excluding fuel. U.S. comps excluding fuel rose 2.6 percent in the year ago quarter. Walmart U.S. logged its strongest comp-store sales growth in nine years, 6.8 percent, when measured on a two-year stack.
Last week, the U.S. Department of Commerce said retail sales continued to drop for the first two months of the 2019 first quarter, prompting a retail sell-off on Wall Street. Official figures showed retail sales across stores, restaurants and online slumped 1.2 percent in December, but the figures could be revised another one or two times.
The retail and e-commerce giant easily beat the Wall Street analyst consensus estimate for adjusted earnings of $1.33 per share for the quarter, posting $1.41 per share. For the full year, earnings per share rose 11 percent to $4.91.
Walmart’s e-commerce sales shot up 43 percent in the quarter, prompting president and chief executive officer Doug McMillon to sound an aggressive note to competitors such as Amazon, which last week decided to quit Long Island City, N.Y., as the site of its HQ2 amid backlash to tax breaks and incentives from New York.
Walmart total revenue increased 1.9 percent to $138.8 billion in the recent fourth quarter, from $136.3 billion. Full-year revenue increased 2.8 percent to $514.4 billion from $500.3 billion in fiscal year 2019.
Net income rose 69.5 percent to $3.68 billion in the fourth quarter, from $2.18 billion in the year-ago period. For fiscal year 2019, net income declined 32.4 percent to $6.67 billion from $9.86 in the prior year.
Gross profit margin contracted 21 basis points to 23.8 percent due to investments in pricing, e-commerce growth and transportation costs. Operating income as a percentage of sales declined 138 basis points to 20.2 percent in the quarter, and was down 48 basis points to 21 percent for the full year.
Walmart shares rose 2.2 percent to $102.20.
McMillon, in a conference call, said the strength of the U.S. business, including e-commerce sales, “exceeded our expectations.”
Sam’s Club same-store sales increased 3.3 percent, without fuel, and e-commerce sales rose 21 percent. Despite closing 10 percent of clubs last year, membership remained flat.
Net sales at Walmart International declined 2.3 percent to $32.3 billion. Excluding currency fluctuations, net sales were $34 billion, an increase of 2.7 percent. Comp-store sales were positive in all of the major markets.
“We leveraged operating expenses even as we invested in e-commerce and wages,” the ceo said. “We’re expanding product reviews and on-time delivery. We have a superior value proposition as we compete aggressively on price. We’ll play offense as we continue to innovate in e-commerce.”
“Jet.com is focusing on urban markets,” McMillon said. “We’re very pleased with the role it’s playing in attracting new brands. We’re looking constantly at acquisitions.“
But the rate of bringing new brands online to walmart.com isn’t as fast as McMillon would like, and reaching e-commerce profitability is also taking longer because “the merchandise mix isn’t where it needs to be in order to generate a customer experience that drives repeat business.”
“We’re trying to build an e-commerce business in apparel, home and hardlines that brings customers back,” McMillon said. “Building the merchandise assortment with the brands we’re trying to add and getting it to where it’s a repeatable healthy business online is taking longer. So, we’re peddling fast, trying to make that happen. We’re disappointed that it’s taking as long as it is.”
“The team is working with a great sense of urgency to increase sales in key areas like home and apparel, which will help margin rates while we’re simultaneously investing in new innovative e-commerce solutions,” said Brett Biggs, executive vice president and chief financial officer at Walmart. “As we outlined in October, we expect losses in e-commerce to increase this year as we invest in infrastructure, people, online grocery and Store No. 8 initiatives.”
Walmart’s SuperCenters serve 90 percent of the U.S. population. McMillon said the number of stores offering same-day grocery delivery will double this year, while grocery pickup will expand to an additional 1,000 stores.
McMillon said Walmart is seeing improvements in apparel with its private brands, including EV1 from Ellen DeGeneres and the new Sofîa Vergara jeans collection.
The company is operating with a break-even mentality when it comes to delivery. “The combination of great stores that can increase in function as productive fulfillment centers, together with pickup, delivery and future enhancements, get me really excited,” McMillon said. “It looks like there’s a long runway for our SuperCenters.”
Walmart has been using a combination of last-mile solutions. “We’re still playing around with some associate deliveries in a small way and trying to figure that out,” McMillon said, about an initiative where associates can deliver packages along their route home for extra pay. “We have our own crowdsource platform, Spark, which is helping us achieve scale. I’m excited about figuring this out.”
McMillon said Walmart will continue to monitor the ongoing tariff discussions. Biggs addressed Flipkart and the Indian government’s new rules prohibiting e-tailers from selling products of companies in which they hold stakes, which came into effect Feb. 1. Walmart last year paid $16 billion for a 77 percent stake in India’s largest online retailer.
“There could be disruption in the business, but we feel good about our ability to transition with minimal interruption,” Biggs said, “We don’t believe it will be significant enough to impact total company guidance for the year. While there’s growing uncertainty in the overall macroeconomic and political environment, we’re confident in our ability to operate effectively in most any economic climate.”
The retailer reiterated its fiscal 2020 guidance. Total net sales are expected to grow at least 3 percent. EPS will decline by a low-single-digit percentage range when Flipkart is included, but EPS will increase by a low- to mid single-digital percentage range compared with fiscal 2019 adjusted EPS when Flipkart is excluded. Walmart U.S. comps should grow 2.5 to 3 percent, excluding fuel, while Sam’s Club comps are expected to expand about 1 percent. Walmart U.S. e-commerce net sales are seen rising 35 percent for the year, and Walmart International net sales are forecast to be up about 5 percent.