Wal-Mart Lowers Sales Outlook; U.S. 4Q Sales Soft--3rd Update
February 18 2016 - 2:43PM
Dow Jones News
By Sarah Nassauer and Chelsey Dulaney
Wal-Mart Stores Inc. Thursday cut a sales forecast made just
four months ago, surprising investors again and dimming hopes that
heavy spending on upgrading its stores, e-commerce operations and
wages will bring quick growth.
Sales this fiscal year will be "relatively flat," Wal-Mart said
in its earnings release, a downgrade from October when executives
predicted sales growth between 3% to 4%. It is the latest in a
string of repeated forecast cuts by the retailer.
The company said the downgrade wasn't due to sales trends, but
reflects the impact from recently announced store closures, as well
as the continued strengthening of the U.S. dollar. Excluding the
impact of currency and store closures, Wal-Mart said the sales
growth forecast would have held steady.
Wal-Mart shares fell 4.5% in recent trading to $63.14, its
steepest decline since October when the company warned that profit
this fiscal year could fall as much as 12%. Over the past year, its
shares are down 24%.
The reaction is evidence of the high wire act Wal-Mart Chief
Executive Doug McMillon is performing in asking investors to accept
lower profits in the short-term for a better outcome in the future.
The Bentonville, Ark.-based retailer is spending heavily to improve
stores and boost e-commerce sales in its fight against stiff
competition from the likes of Amazon.com Inc., grocers like Kroger
Co. and smaller retailers including dollar stores, but at a cost to
profitability.
Wal-Mart says the plan is working. Sales at Wal-Mart's existing
U.S. stores rose for the sixth straight quarterly gain after a long
stretch of declines but only ticked up 0.6%, short of analysts'
forecasts of 1% growth, according to Consensus Metrix. The quarter
ended Jan. 31, 2016, included the key holiday shopping period. The
number of people visiting Wal-Mart's stores rose 0.7%, the fifth
straight quarterly increase.
"We do see an underlying strength in our Wal-Mart U.S. business
that wasn't there a year ago," Mr. McMillon said Thursday. "This
past year has been a year of investment, operational improvement
and change."
Inventory levels have fallen and customer satisfaction scores
are improving, according to Wal-Mart executives, and store employee
turnover has fallen in the wake of wage increases. After raising
the minimum hourly wage to $9 last year, it will boost it further
to $10 for on Saturday for most of its one million strong store
employees.
In all, Wal-Mart posted an 8% drop in fourth-quarter profit to
$4.57 billion. Revenue fell 1.4% in the period ended January 31 to
$129.7 billion, below analyst forecasts.
Wal-Mart is contending with external headwinds. Executives said
the strong dollar and falling prices of meat and dairy took a bite
out of revenue, and executives also cited a delay in IRS tax refund
checks in late January and warm weather.
"While customers benefited from lower gas prices, we experienced
significant headwinds from deflation," said Wal-Mart U.S. CEO Greg
Foran on a pre-recorded call to discuss earnings. Mr. Foran expects
deflationary pressure to continue through the first quarter of
fiscal year 2017, he said on a call later with reporters.
Wal-Mart's weaker sales forecast didn't add clarity to a retail
picture that has remained murky over the last year. While the U.S.
consumer seems to be strengthening, benefiting from higher wages,
lower unemployment and cheap gas, many big retailers are struggling
with fundamental changes in shopping habits.
In response to those shifts, Wal-Mart is spending upward of $5
billion on several initiatives including wage increases, e-commerce
development and steps to lower prices, a necessary measure for a
retailer that relies heavily on low prices to draw shoppers.
According to annual surveys from Kantar Retail, a research and
consulting firm, Wal-Mart's reputation for having the lowest prices
is eroding. In 2015, 22% of shoppers said Wal-Mart had the lowest
prices for food, compared with 25% in 2011.
"The results demonstrate the need for the investments they are
making," said Robert Drbul, retail analyst at Nomura Holdings
Inc.
Wal-Mart's e-commerce sales continued to decelerate, up 12% in
fiscal year 2016 compared with a 24% increase the previous year.
Executives pointed to a weak economy in Brazil and China and strong
competition in the U.K. for the slowing figures.
For the 12 months ended Dec. 31, Amazon.com Inc. North American
sales rose 25%. "That is clearly impacting Wal-Mart," said Mr.
Drbul.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Sarah
Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
February 18, 2016 14:28 ET (19:28 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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