By Sarah Nassauer
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 21, 2018).
Walmart Inc., which had improved its e-commerce operations over
the past year in its fierce battle with Amazon.com Inc., stumbled
in the fourth quarter after misjudging its online inventory for the
holiday season, sending its stock tumbling and slicing more than
$31 billion from its market capitalization.
Walmart shares fell more than 10% Tuesday, with the downdraft
pulling many retail stocks along. It was the biggest one-day drop
in stock price in more than two years for the world's largest
retailer.
Walmart Chief Executive Doug McMillon said that as holiday goods
like TVs and toys flooded Walmart's e-commerce warehouses, they
squeezed the room for everyday items such as toilet paper. That
meant the retailer ran out of some items, hurting online sales.
"Our in-stock for basic items suffered as a result," Mr. McMillon
said.
Walmart also said its U.S. profit margins were hit by lower
prices and by more sales shifting to the web. Online sales are
generally less profitable than those in stores.
The retailer's shares had skyrocketed this year, boosted by high
expectations for its online growth. On Tuesday, Walmart reported a
2.6% gain in overall sales for the quarter ended Jan. 31, for its
14th consecutive quarter of growth. But its U.S. online sales grew
only 23% in the quarter, in contrast with three previous quarters
of more than 50% growth.
That wasn't enough for investors. "This quarter did not live up
to those high expectations," said Simeon Gutman, a retail analyst
for Morgan Stanley.
Still, Mr. McMillon on Tuesday expressed confidence. "Looking
ahead, we expect e-commerce growth to increase from the
fourth-quarter level as we enter the new year," he told
analysts.
E-commerce accounts for less than 4% of Walmart's over-$500
billion in annual revenue. Walmart expects online sales to grow 40%
for the current fiscal year, which ends next Jan. 31.
Walmart has been working quickly to build its e-commerce
business in recent years and head off Amazon.com's dominance
online. It has shifted spending to invest in its web operations,
including faster home delivery and e-commerce acquisitions. It also
has spent to improve existing stores, while it cut jobs and
tightened expense controls.
The company closed 10% of U.S. Sam's Club locations earlier this
year and has slowed Walmart store openings to focus on e-commerce
growth.
The retail industry more broadly is struggling to meet the
e-commerce challenge. On Tuesday, grocer Albertsons Cos. said it
plans to buy the rest of Rite Aid Corp. that isn't already being
sold to Walgreens Boots Alliance Inc. The chief executives of the
companies said in interviews Monday the merger is the best way for
them to compete against the increasing threaten from Amazon and an
emboldened Walmart. Target Corp. bought same-day delivery service
Shipt in December.
Walmart's acquisition of online store Jet in September 2016 was
a big part of the retailer's e-commerce strategy, and new features
like free two-day shipping on more items and an expanded online
selection helped boost online sales quickly.
Walmart has added hundreds of online grocery pickup locations at
stores, which are counted in the e-commerce sales figures.
On Tuesday, Walmart signaled a shift in its online strategy,
saying it would put more focus on acquiring new customers for its
main Walmart website, which has national brand recognition, and
would slow marketing spending for Jet, which caters to
higher-income, urban shoppers.
That will lead to slowing sales for Jet temporarily, Mr.
McMillon said.
"E-commerce growth, it ebbs and flows," at all retailers, said
Brendan Witcher, principal analyst at Forrester Research. The
latest quarter indicated e-commerce growth at Walmart remained
healthy, he added.
Walmart said Tuesday earnings per share would come in between
$4.75 and $5.00 for the fiscal year, lower than some had been
anticipating, mainly due to a smaller-than-expected benefit from
recent tax-code changes. The company said the new U.S. tax law
added $207 million to earnings in its latest quarter, but that
amount could shift in future quarters as the company completes its
analysis.
Walmart's overall holiday sales rose on a strong economy.
Improvements to its food and household-goods areas also boosted
sales, the retailer said.
Holiday sales, buoyed by rising wages and low unemployment, were
strong at many traditional retailers and at Amazon.com. Last month
Target, Macy's Inc. and J.C. Penney Co. said holiday sales
rose.
On an adjusted basis, Walmart reported a profit of $1.33 a share
for its fourth quarter, below the $1.37 expected by analysts polled
by Thomson Reuters.
Walmart said the closings of 63 Sam's Clubs during the quarter
and discontinuing real-estate projects and activities related to
the new tax code reduced per-share earnings by 60 cents.
--Austen Hufford contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
February 21, 2018 02:47 ET (07:47 GMT)
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