Walmart Inc.’s fourth quarter 2018 results were a mixed bag, but Wall Street focused on the negative, and its shares took a beating after the Bentonville, Ark. giant reported a sharp decline in profit and slower-than expected growth in e-commerce sales.
Net income plummeted 42.1 percent to $2.17 billion, or 73 cents a share, from $3.76 billion, or $1.22 per share in the 2017 fourth quarter. Analysts were expecting EPS of $1.37 per share. Fiscal 2018 net income declined 27.7 percent to $9.86 billion from $13.64 billion in 2017. EPS for fiscal 2018 declined 25.2 percent to $3.29 from $4.40 in the prior fiscal year.
Net sales in the 2018 fourth quarter increased 4.2 percent to $135.15 billion, from $129.75 billion in the year-ago period. For fiscal year 2018, net sales rose 3 percent to $495.76 billion, from $481.3 billion the previous year. Comp-store sales grew 2.6 percent and traffic rose 1.6 percent.
Walmart Inc. chief executive officer Doug McMillon during a conference call with analysts, said of walmart.com’s sales growth rate, “most of that was planned. We expected a lower growth rate since we were lapping Jet.com. Seasonal spikes came into our fulfillment centers that harmed our basic in-stock. We’re learning to deal with higher volumes and higher peaks, but most of that was planned.”
Walmart.com e-commerce sales in the fourth quarter grew 23 percent to $11.5 billion, and 40 percent for the year.
The ceo said that Walmart is changing its growth strategy for Jet.com. Rather than invest in growing the business across the U.S., it will only push the site in urban areas. “Jet in the New York-metro area has a lot of traction and is very well known,” McMillon said. “It’s really just a positioning choice. We wanted to keep our minds open when we acquired Jet. Out thoughts before we bought it were confirmed. Jet reaches some parts of the country. Jet will start to grow again in the future and walmart.com will be broad and grow across the country.”
McMillion said that in terms of e-commerce, the future holds more mergers and acquisitions. “We’re going to do that at times when an acquisition makes sense because you can accelerate assortment,” he said, without elaborating.
The specter of Amazon was present as McMillion took pains to play up Walmart’s grocery and fresh businesses. “We gained a lot of market share particularly in food in the fourth-quarter. If that continues, how do we think about Walmart’s profitability,” he said, referring to the grocery sector’s razor-thin margins. “The diversity of our portfolio gives us more options.”
Gross margins declined by 61 basis points in the fourth quarter to 24.1, and dropped 26 basis points for the full year to 24.7 due to investments in hourly wage increases and bonuses for sales associates, training academies and lower pricing. Other impacts included the closure of 63 underperforming Sam’s Club units and exiting the first party e-commerce business in Brazil and the divestiture of Suburbia. As a measure of how intense the competition with Amazon has become, Walmart last week said it will offer free two-day shipping to Sam’s Club members.
Jet.com’s smart cart technology is also helping by encouraging customers to receive discounts by buying more products across different categories. “If you want to buy a single can of corn for under $1, there’s not going to be a better way than Supercenters,” said Brett Biggs, executive vice president and chief financial officer. “We can start to change the economics of e-commerce to be profitable with a blended basket. You can see it in the fourth-quarter pricing choices we made, that we’re really interested in building smart basket profitability.”
Walmart shares dropped 9.10 percent or $9.53 to $95.23 in morning trading on the New York Stock Exchange.