By  on February 20, 2018

Walmart Inc. is getting serious about apparel again.

In reporting fourth-quarter results that showed a sharp decline in profits and slower-than-expected growth in e-commerce, the Bentonville, Ark.-based giant said it will likely acquire other specialty brands in the future. The retailer is revamping its web site to focus more on softlines, including and apparel and home and has been making changes to its apparel business after years of dormancy. Two key brands, White Stag and Faded Glory, are being discontinued in stores. George will be reconfigured to sell men's wear only.

Taking a page from Target, which exited the Mossimo and Merona business and is launching more than a dozen new brands, Walmart has introduced online Time and Tru for women, Terra & Sky for plus-sizes, and Wonder Nation for kids. And with Amazon launching a massive number of brands, apparel could no longer be ignored."They're finally taking a look at their existing apparel business and making some pretty significant changes," said Carol Spieckerman, president of Spieckerman Retail."Walmart is finally answering the question of how much better could [apparel sales] be. The numbers they do are alarmingly good without them doing much of anything."Walmart chief executive officer Doug McMillon during a conference call with analysts, stressed the size of's assortment, which doubled in the past year to nearly 75 million stockkeeping units. "Acquisitions like Bonobos and Modcloth bring unique, private branded products to our shopping experience," he said. "In addition, partnerships, like the agreement with Lord & Taylor, will help create specialty experiences that complement our own assortment with more brands customers want.""They're building a digital house for Lord & Taylor," Spieckerman said. "What would prevent them from putting their acquired brands on Lord & Taylor gives Walmart permission to play a little more on with the brand portfolio they integrate into that platform."While the retailer surpassed $500 billion in yearly revenues for the first time, Walmart's overall results disappointed Wall Street, which sent its stock down 10.17 percent, or $10.65, to $94.11 in afternoon trading on the New York Stock Exchange.Net income in the quarter plummeted 42.1 percent to $2.17 billion, or 73 cents a share, from $3.76 billion, or $1.22 a share, in the 2017 fourth quarter. Analysts were expecting EPS of $1.37 a share. Fiscal 2018 net income declined 27.7 percent to $9.86 billion from $13.64 billion a year earlier. EPS for fiscal 2018 increased 2.3 percent to $4.42 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 $500.3 billion, from $485.9 billion the previous year. Comp-store sales grew 2.6 percent and traffic rose 1.6 e-commerce sales in the fourth quarter grew 23 percent to $11.5 billion, and rose 44 percent for the year.McMillon said of’s sales growth rate, “Most of that was planned. We expected a lower growth rate since we were lapping the acquisition. 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.”The ceo said Walmart is changing its growth strategy for Rather than invest in growing the business across the U.S., it will focus only on 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. Our thoughts before we bought it were confirmed. Jet reaches some parts of the country. Jet will start to grow again in the future and will be broad and grow across the country.”McMillon said the future holds more mergers and acquisitions for e-commerce. “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 McMillon took pains to play up Walmart’s grocery and fresh businesses. “We're expanding online grocery in the U.S. and around the world and broadening our delivery capabilities in the U.S., China and other international markets. 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.”Online grocery customers spend more in total once at Walmart stores and online platforms when they start using the service, McMillon said, adding, "So we’ll lean in this year by nearly doubling the number of online grocery locations in the U.S."Consolidated gross profit margin declined by 61 basis points in the fourth quarter to 24.1, and dropped 26 basis points for the full year to 24.7. About two-thirds of the decline was driven by price investments and the mixed effect from the growing e-commerce business. The last one-third was associated with the 63 Sam's Club closures, 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’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.”Tax reform is allowing Walmart to accelerate its plans in the U.S. Walmart expects its effective tax rate for fiscal 2019 to be 24 percent to 26 percent, compared with previous guidance, prior to tax reform, of 32.5 percent. "We'll see a tax benefit of $2 billion a year," Biggs said. "We have not made any decisions about repatriation."Biggs said Walmart in 2019 will continue to make investments that will pressure the bottom line, "but not to the extent of this quarter."

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