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Here’s How Walmart’s Spending $14 Billion in CapEx

Walmart Inc. posted a fourth-quarter earnings per share miss, and while it did better than what Wall Street analysts were expecting on the revenue front, the mass discounter also provided guidance indicating that higher operating costs and investments will impact fiscal year 2022 results.

In a Nutshell: The mass discounter has been making investments on the technological front to help with data analytics and improve supply-chain operations. Many of those investments aimed at helping Walmart innovate are starting to pick up speed and are in the early stages of scaling, all of which will help fuel growth in 2021 and beyond, executives said Thursday during a virtual Investor Day meeting.

The capital expenditure spend for fiscal year 2022 is expected in the range of $14 billion, with a focus on supply chain, automation, customer-facing initiatives and technology.

Doug McMillon, president and CEO, said Walmart is moving with “more speed and aggressiveness” and scaling new capabilities and businesses. Customers, he added, want to know that “the company they do business with can be trusted to treat everyone in their supply chain well and take actions that strengthen our planet.”

“So, we’re in an early stage of building a new business model that will enable us to serve people how they want to be served in any particular moment and thrive in the next generation of retail as a business. Over time, we believe that the big winners of retail will be those that deliver a unique interrelated ecosystem,” McMillon said.

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In describing the emerging business model, McMillon said Walmart will invest more aggressively in capacity and automation. “We are absolutely playing offense here. Customers can choose to visit a store, pick up their order, have it delivered, have it delivered into a secure box on their front step into a garage, refrigerator, or all the way into their kitchen, even when they’re not at home. When you hear us say delivery, define that as the combination of delivery from our stores, clubs and e-commerce fulfillment center,” he said. Investments will help the company optimize for speed and costs behind the scenes, he added.

E-commerce sales will continue to grow at a fast pace beyond the pandemic, McMillon said, noting that global e-commerce sales could be “over $100 billion in the next couple of years.”

“We’d add assortment and brands,” he added. “Our emphasis here is on general merchandise. We’ve got a lot of upside in apparel, home and hardlines to capture that upside.”

Some of the pilot testing in automation is at the point where Walmart is now ready to scale, and overall investments will improve the customer experience and enhance productivity.

Scaling automation will require investment in distribution centers, as well as its other centers for e-commerce and grocery market fulfillment. McMillon said an interconnected supply chain with hundreds of distribution and fulfillment centers, thousands of stores and clubs, all close to people must function in a hybrid fashion. And they must be automated based on volumes and complemented by onsite fulfillment centers.

“And imagine our growing network with a next-gen level of automation. I think the next few years will represent more change in our supply chain than even the grocery DC rollout we did to support Super Centers,” McMillon said.

Building other business such as an advertising platform and new financial services provide alternative income streams and complement traditional retail. These can be adapted to specific customer needs in each market and can leverage Walmart’s different operating models. In India, where e-commerce penetration is still low, but growing rapidly, McMillon said the company is well positioned to grow as an emerging middle class spends more money through their mobile phones, as consumers do in the U.S. and Mexico. “This is a market where we’ll step on the gas to ensure we have the appropriate level of investment in areas like supply chain,” McMillon said, adding “These [including Flipkart] are homegrown businesses with innovation and problem solving to the Indian customer at their core.”

Walmart believes it can achieve 4 percent topline growth in 2021, with McMillon noting the significant “opportunity with e-commerce.” However, “we’re not good at it yet,” he added. “We’re adding assortment. We’re adding brands [and] the marketplace is scaling nicely. We need more investment in capacity to have the fulfillment service achieve its potential and service customers as well.”

John Furner, president and CEO of Walmart U.S., said that the priority last year was to be more customer driven, which led to a combination of app, services and a redesign of stores, as well as the launch of Walmart Plus, its new membership program. The retailer used its last-mile delivery network to get orders to customers as soon as possible, instead of having them wait a couple of days after placing their orders, he said. “Three thousand of our stores are now doing these deliveries. And they’ve added density to our last mile business and helped accelerate it,” he added.

So far, the company is doing “1.5 million deliveries each and every week from stores, which is more than seven times what we were doing a year ago,” he said, adding that Walmart expects to see delivery costs shrink as it builds volume and density.

As for maintaining the low costs shoppers expect, “We’re working with a number of suppliers on next-generation fulfillment technologies, and we’re scaling [work] in our supply chain. We’re using robotics to pick and palletize items by store department and aisle. This has helped both with productivity and in-stock at stores,” Furner said.

Furner said Walmart U.S. had made progress in adding brands such as Levi’s, Reebok and others. “And this year, we’ll add many more. Some iconic names that I’m very exited about. We have 13 general merchandise private brands that will be classified as billion-dollar brands and three of our apparel lines are $2 billion brands,” Furner said.

Net Sales: Total revenues for the quarter ended Jan. 31 rose 7.3 percent to $152.1 billion from $141.7 billion, which included a 7.4 percent gain in net sales to $151.0 billion from $140.6 billion. The balance of revenue was from membership and other income.

Sales at Walmart U.S. rose 7.9 percent in the quarter to $99.6 billion, while e-commerce net sales rose 69 percent. Comparable sales for the quarter were up 8.6 percent. For the international operation, net sales rose 5.5 percent to $34.9 billion. The company said it had positive comparable sales in seven of nine markets, with strong top line growth led by Flipkart, Mexico and Canada.

For the year, total revenue in 2020 was up 6.7 percent to $559.2 billion from $524.0 billion, which included a 6.6 percent increase in net sales to $555.2 million from $519.9 million.

Earnings: The company reported a net loss of $2.09 billion, or 74 cents a diluted share, against net income of $4.14 billion, or $1.45, a year ago. Adjusted diluted earnings per share was $1.39.

Wall Street was expecting adjusted diluted EPS of $1.51 on revenue of $148.47 billion.

For fiscal year 2022, the company expects consolidated net sales growth to increase in the low single digits, excluding divestitures. Comps for Walmart US are expected to up by the low single-digits, excluding fuel. Net sales growth at international operations is expected to see a higher growth percentage than in the U.S.

For the year, net income fell 9.2 percent to $13.5 billion, or $4.75 a diluted share, from $14.88 billion, or $5.19, in 2019.

CEO’s Take: “We are going to keep the customer in the center and design for them. The new business model we’re building will allow us to strive to reinvent. There is so much opportunity in front of us. Our associates, including our leadership, are the reason we have so much confidence. Sam Walton was described as a merchant with a servant’s heart. Our associates are continuing that legacy,” McMillon said.