Wal-Mart Plans Further Cost Cuts as Competition With Amazon Intensifies -- Update
October 10 2017 - 12:22PM
Dow Jones News
By Sarah Nassauer and Austen Hufford
Wal-Mart Stores Inc. said it would deepen its cost-cutting and
introduce zero-based budgeting in some units, efforts to free up
funds for new e-commerce and store improvements in an increasingly
competitive retail environment.
At an investor meeting on Tuesday at the retailer's Bentonville,
Ark., headquarters, executives said they planned to keep U.S. store
openings to a minimum and lower the company's expenses as a
percentage of sales from 21%, where it stands this fiscal year.
"We are not where we want to be from an expenses standpoint,"
Brett Biggs, chief financial officer, told analysts.
Wal-Mart will open fewer than 25 new U.S. stores in the 2019
fiscal year, which ends in January 2019. Instead, it will remodel
existing ones and work on e-commerce infrastructure and services
like expanded home grocery delivery, areas that should keep sales
moving upward online and off, executives said. Next year, the
company says it expects to see U.S. revenue from online purchases
rising about 40%.
The number of U.S. store openings is down from the 216 it opened
during the 2016 fiscal year and 111 in 2017. Meanwhile, the company
said it would open 255 new stores in other countries with a focus
on Mexico and China.
Wal-Mart has kept sales growing with improved stores and online
investments, in contrast with retailers that have struggled to fend
off discount rivals and Amazon.com Inc. But Wal-Mart's e-commerce
plans have become more urgent in the wake of Amazon's purchase of
Whole Foods Market. The acquisition gave Amazon a foothold in the
brick-and-mortar supermarket business, a direct threat to Wal-Mart,
the country's largest seller of groceries.
Wal-Mart Chief Executive Doug McMillon said the company plans
several ways of delivering groceries to shoppers' homes, including
using employees, contract delivery workers and third-party services
such as Deliv that have their own teams. Mr. McMillon added,
however, "I believe the vast majority of grocery shopping will
happen in stores for a long time."
The retailer has invested heavily in online grocery pickup at
its stores, when shoppers order online and pick up in a store
parking lot. Executives said Tuesday that by the end of this year
it will offer the service at 2,000 U.S. stores, roughly double the
number of stores where it is currently available.
Last year, Wal-Mart purchased online retailer Jet.com for $3.3
billion, placing founder Marc Lore at the head of its U.S.
e-commerce operations. Mr. Lore has pushed the behemoth to buy a
number of smaller e-commerce players, offer two-day shipping on
more online sales and craft a more upscale online image that will
attract premium product manufactures.
Those expenses, as well as store improvements, will mean further
cost cuts across the business, Mr. Biggs said. Wal-Mart will
institute zero-based budgeting -- a technique in which each
business expense must be justified every quarter -- in many parts
of the business "above store level," Mr. Biggs said. For example,
Wal-Mart shortened the length of its store receipts saving more
than $7 million so far this year, he said. Over the past two years,
Wal-Mart has already cut costs by eliminating thousands of
corporate and store jobs, increasing the fees charged to its
suppliers to deliver goods to stores and demanding lower prices on
goods.
Zero-based budgeting is used more widely in the
consumer-products and packaged-foods sectors, though some other
companies, including Verizon Communications Inc. and Sprint Corp.,
have deployed the technique.
Wal-Mart said it expects adjusted earnings per share growth of
5% in its 2019 fiscal year to outpace sales growth of about 3%,
confirming its profit goals laid out last year.
The company maintained its adjusted earnings per share guidance
in the current fiscal year of $4.30 to $4.40.
Wal-Mart shares rose 4.5% to $84.15 in morning trading.
The company also announced a new $20 billion share buyback
program, which it intends to use over the next two years. The new
buyback authorization replaces another $20 billion one, announced
in October 2015.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 10, 2017 12:07 ET (16:07 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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