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Walmart’s Revised Forecast Gloomy; Remains Committed to Aggressive Expansion

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Walmart issued a less than stellar forecast for the next fiscal quarter but also reasserted its intentions to continue an aggressive campaign of capital spending and growth.

For the fourth quarter which concluded January 31, same-store sales for Walmart’s U.S. locations dropped 0.4%, with Sam’s Club stores falling 0.1%. Doug McMillon, the new chief executive, acknowledged the problem. “Comp sales improvement is a key priority, and we’ll focus on being even stronger item and category merchants, delivering value and improving our service levels.”

Weaker-than-expected same-store sales have persisted throughout February as well, partly due to the severity of the winter weather, which has temporarily shuttered more than 200 stores. The retailer adjusted its per-share earnings estimate to $5.10 to $5.45, lower than the $5.54 analysts at Thomson Reuters were expecting.

Walmart warned that net sales will likely frustrate industry expectations, which could fall as much as $3.5 billion below previous forecasts. Net profit for the quarter dipped to $4.43 billion from $5.61 billion, or from $1.67 per share to $1.36 per share. Revenue, though, rose 1.5% to $129.7 billion. Walmart’s stock is down 4.9% this year.

Despite the gloomy predictions, Walmart remains committed to opening as many as 300 additional stores in the U.S., including 115 new supercenters. The retailer increased it capital spending plan for the year by a staggering $600 million. Total spending for the year is projected to be between $12.4 billion and $13.4 billion.

Also, Walmart’s recent sluggishness sharply contrasts with its ambitious plans to grow in the next five years, and to move more aggressively into the apparel sector. Walmart has been crafting a comprehensive strategy for apparel merchandise as part of its vision for overall growth over the next five years. Planning to add an additional $500 million in apparel sales over the next year, the retail leviathan will be pushing brands like Ben Hogan, Russell, And-1 and Avia. According to chief merchandising officer Duncan McNaughton, Walmart intends to offer an assorted basket of products that will roughly include 50 percent basic apparel, 40 percent fashion and 10 percent new, exclusively carried brands.

The move into apparel sales is part and parcel of Walmart’s ambitious growth projections for the next several years. Their eye-popping goal for 2016: $500 billion in sales, or about one-half of what J.C. Penney borrowed last year to shore up its capital reserves.

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