Wal-Mart’s US Comps Clock Biggest Gain in Four Years

Online sales grew by a robust 29% during Q4 FY17

Retailing behemoth Wal-Mart Stores Inc. (NYSE: WMT) announced its Q4 FY17 and full-year FY17 financial results on February 21st, 2017.

The Bentonville Arkansas-based Company operates retail stores in various formats around the world through three reportable segments: Wal-Mart US, Wal-Mart International, and Sam’s Club. The Wal-Mart US segment includes the company’s mass merchant concept in the US, operating under the Walmart or Wal-Mart brand, as well as walmart.com. The Wal-Mart International segment includes numerous formats of retail stores, restaurants, wholesale clubs, including Sam’s Clubs, and various retail websites that operate outside the US The Sam’s Club segment includes the warehouse membership clubs in the US, as well as samsclub.com. Each week, nearly 260 million customers and members visit its 11,539 stores under 63 banners in 28 countries and ecommerce websites in 11 countries.

ith FY17 revenue of $485.9 billion, Wal-Mart employs about 2.3 million associates worldwide. Read more about Wal-Mart’s financial results below.

Q4 FY17 financial highlights

During Q4 FY17, Wal-Mart’s total revenue grew 1% to $130.9 billion. On a constant currency basis, total revenue grew 3% to $133.6 billion during the reporting quarter. Net sales inched up 0.8% to $129.7 billion on a reported basis, and grew 2.9% to $132.3 billion on a constant currency basis. Membership and other income jumped 20.7% to $1.18 billion during the quarter.

For the reporting quarter, Walmart US comp sales grew 1.8%, the biggest gain in four years, driven by a traffic increase of 1.4%. Neighborhood Market comps increased approximately 5.3%. Ecommerce growth at Walmart US was strong as sales and GMV increased 29.0% and 36.1%, respectively, including Jet.com and online grocery. The retailer is benefiting from last year’s acquisition of Jet.com, with online sales growing 29% in the quarter. Net sales at Walmart International were $31.0 billion, a decrease of 5.1%. Excluding currency, net sales were $33.7 billion, an increase of 3.0%.

Apparel, health and wellness, and grocery were some of the top-performing categories at the Company’s US stores, despite a slow start to the quarter for cold-weather merchandise. Electronics, media and gaming were soft.

On the other hand, Wal-Mart’s Q4 FY17 operating income fell 6.6% to $6.2 billion on a reported basis. On a constant currency basis, operating income fell 3.4% to $6.41 billion. In all, Wal-Mart’s Q4 FY17 net income fell 17.9% to $3.75 billion, or $1.22 per diluted share, from $4.57 billion, or $1.43 per diluted share, a year earlier.

Wal-Mart generated operating cash flow of $11.9 billion due to improved working capital management, significant inventory improvement, and timing of payments. Inventories fell 3.2% to $43.04 billion during the reporting quarter.

FY17 financial highlights

During FY17, Wal-Mart’s total revenue grew 0.8% to $485.8 billion. On a constant currency basis, total revenue grew 3.1% to $496.9 billion during the year. Net sales inched up 0.6% to $481.3 billion on a reported basis, and grew 2.9% to $492.2 billion on a constant currency basis. Membership and other income jumped 29.6% to $4.55 billion during the year.

On the other hand, Wal-Mart’s FY17 operating income fell 5.6% to $22.7 billion on a reported basis. On a constant currency basis, operating income fell 2.9% to $23.4 billion. In all, Wal-Mart’s FY17 net income fell 7.2% to $13.64 billion, or $4.38 per diluted share, from $14.69 billion, or $4.57 per diluted share, a year earlier. Wal-Mart generated operating cash flow of $31.5 billion during the year.

Segmental highlights

Wal-Mart US: During Q4 FY17, this segment reported a 2.8% growth in net sales to $83.7 billion. Comp sales grew to 1.8% from 0.6% during the reporting quarter, with comp traffic at 1.4% and comp ticket rising to 0.4%. On a 2-year stack basis, comp sales and traffic were up 2.4% and 2.1%, respectively. Market food deflation negatively impacted food comps by approximately 90 basis points. Strength in general merchandise and health & wellness was led by home, hardlines, apparel and OTC.

Gross margin decreased 8 basis points as savings from procuring merchandise as well as lower logistics costs benefited the margin rate, but were more than offset by the continued execution of our price investment strategy, the timing of post-Holiday markdowns, and the mix effects from its growing ecommerce business, including Jet.com. Total inventory declined 3.1% and comp store inventory declined 7.2%, while maintaining high in-stock levels.

This segment reported net openings of 14 Supercenters (including conversions and relocations) and 13 Neighborhood Markets. It also expanded online grocery to more than 600 locations in over 100 markets. However, operating income fell 2.5% to $4.99 billion during the reporting quarter.

Wal-Mart International: During Q4 FY17, this segment reported a 5.1% fall in net sales to $31.02 billion. On a constant currency basis, net sales grew 3% to $33.6 billion.

Ten of 11 markets reported positive comp sales, and six of 11 markets had comp sales greater than 4%, due to strength in the key markets of Mexico and China. Currency exchange rate fluctuations negatively impacted net sales by $2.6 billion. The gain from the sale of certain shopping malls in Chile was a benefit to operating income in Q4 FY17. Operating income declined 8.9% on a reported basis to $1.5 billion, while it grew 3.8% on a constant currency basis to $1.72 billion. Inventory grew slower than sales on a constant currency basis driven by several of the largest markets such as Mexico, the UK, and Canada.

Sam’s Club: During Q4 FY17, this segment reported a 3% growth in net sales to $14.9 billion with fuel. Excluding fuel, net sales grew 2.3% to $13.9 billion during the quarter. Comp sales for the quarter grew 2.4%, as growth was balanced between traffic and average ticket. Market deflation abated during the period, yet it negatively impacted comp sales, primarily in food, by approximately 50 basis points. Tobacco performed well, along with home and apparel as well as health and wellness. Ecommerce sales contributed approximately 80 basis points to comp sales. Operating income fell 8.5% to $390 million due to headwinds including investments in people and related payroll costs, promotions, and costs associated with expanded payment options for members. Total inventory increased 2.4% driven by food, tobacco, and home goods.

Other highlights

Job creation and capital expenditure: On January 17th, 2017, Wal-Mart announced its plans to open, expand, or relocate 59 Wal-Mart and Sam’s Club locations in 2017. While that adds 10,000 retail jobs, the expansion is far smaller than in many previous years and would increase its headcount by less than 1% in the US Most of Wal-Mart’s 10,000 new employees, including hourly workers, department managers and supervisors, will be in 59 new stores that will be opened in the fiscal year beginning in February 2017. Store openings will decline from 130 this year. Wal-Mart hopes to offset that drop by adding positions for e-commerce services such as online grocery pick-up as well as new-format stores.

Wal-Mart’s plan points to $6.8 billion in US capital spending, including the construction of stores and distribution centers. Wal-Mart is the largest private employer in the US, with almost 1.5 million workers in the US, out of 2.4 million people that it employs worldwide. In addition to the 10,000 retail positions, the new and expanded stores are expected to bring in an estimated 24,000 construction jobs in 2017.

Wal-Mart’s slowdown in opening new physical stores, announced in October 2016 to cope with sluggish brick-and-mortar sales, seems to have been rehashed as a growth plan. This is because the Bentonville Arkansas-based Company faces more pressure to show that it is creating US jobs ahead of Friday’s inauguration of President-elect Donald Trump, who has pushed companies to employ more Americans.

Wal-Mart earlier announced that it would slow down new store openings and instead count more on ecommerce and existing stores. As such, the company is increasing investments in ecommerce, technology, store remodels, and other customer initiatives. Among the customer initiatives announced, Wal-Mart has pledged to invest $250 billion in products that support the creation of American jobs by 2023.

New retailing formats: Wal-Mart announced on December 01st, 2016, that it is testing a small-format store called Walmart Pickup with Fuel, a new concept offering a combination of an online grocery order pick-up location, a convenience store that sells hot sandwiches and coffee, as well as has a gas station. The 4,000-square-foot convenience stores, by large tiny when compared to Wal-Mart’s large-format stores seen in most locations, is seen as an effort to take competition head-on with online retail giant Amazon.com Inc. (NASDAQ: AMZN) and The Kroger Co. (NYSE: KR), the second-largest food retailer in the US, which are both looking to dominate the booming online grocery shopping market.

Walmart Pickup and Fuel are being tested only in two locations, one in Huntsville, Alabama and the other in Thornton, Colorado. The new concept store offers grab-and-go items, including hot sandwiches, healthy snacks, fresh donuts, a host of beverage options and a coffee bar. It also offers home needs like milk, eggs, and bread, and is open from 5 a.m. to 11 p.m. daily.

Investments in ecommerce: To reverse the deceleration of its e-commerce business and take competition head-on with rival Amazon.com Inc. (NASDAQ: AMZN), Wal-Mart is investing $2 billion over two years to boost ecommerce sales and setting up new fulfillment warehouses to speed up delivery times and increasing the number of products sold on its website.

Share repurchases: Wal-Mart returned $3.6 billion to shareholders through dividends and share repurchases during the reporting quarter. During FY17, the Company returned $14.5 billion to shareholders through dividends and share repurchases.

Guidance for FY18

For FY18, Wal-Mart expects to earn between $4.20 a share and $4.40 a share compared to an estimate of $4.33. That includes profit of 90 cents per share to $1 per share in Q1 FY18.

Stock Performance

Wal-Mart’s stock ended the day at $72.39, gaining 1.51%, at the close on Friday, February 24th, 2017, having vacillated between an intraday high of $72.80 and a low of $71.30 during the session. The stock’s trading volume was at 13,817,149 for the day. The Company’s market cap was at $219.15 billion as of Friday’s close.

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