Walmart Inc. saw soft holiday sales in apparel and toys during the fourth quarter, though e-commerce turned in another strong performance.
In a Nutshell: “In Q4, we saw strong performance in the U.S. with e-commerce and Sam’s Club, plus strength in Mexico, India and China. We started and finished the quarter with momentum, while sales leading up to Christmas in our U.S. stores were a little softer than expected,” president and CEO Doug McMillon said.
While the quarter started and ended strong, with solid sales growth through Cyber Monday and in January, the few weeks before Christmas saw softness in a few general merchandise categories at Walmart’s U.S. stores, chief financial officer Brett Biggs said.
“The holiday season delivered positive transaction growth and underlying expense leverage was strong for the quarter. However, it wasn’t as good as expected due to lower sales volumes and some pressure related to associate scheduling. We understand the factors that affected our results and are developing plans to address them,” Biggs said. “We remain confident in our business strategy and our ability to deliver value and convenience for our customers through an integrated omnichannel offering across the globe.”
Moody’s Investor Service described Walmart’s fourth quarter as “tepid overall,” according to Charlie O’Shea, the lead Walmart analyst for the credit ratings firm.
The mass retail chain’s lackluster showing indicates that the “holiday season was, if anything, even more promotional than we anticipated, with its U.S. operating margin down around 75 basis points for the quarters–some of which was due to mix as lower margin food sales were strong while higher margin apparel was weak, some due to softness in key holiday categories such as toys, and some due to increased expenses around delivery,” he added.
O’Shea pointed to unrest in Chile that contributed to store closures and damage, noting the positive development in Walmart’s narrowing Flipkart losses.
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The compressed holiday season likely impacted U.S. toy and apparel sales in stores, according to Cowen & Co. luxury and retail analyst Oliver Chen, who saw “some assortment challenges in apparel.” The first quarter could see a “several cent drag” on EPS, in part due to the impact from coronavirus headwinds, Chen noted.
“Overall, [e-commerce] performed above expectations, while stores did miss. More specifically, the quarter went mostly according to plan [despite the weeks leading up to Christmas]. Management pointed to several factors, including too much focus on opening price points and leaning too heavily into seasonal apparel,” said Chen, who currently has an “Outperform” rating on shares of Walmart.
Net Sales: Total revenues for the quarter ended Jan. 31 rose 2.1 percent to $141.67 billion from $138.79 billion a year ago. Excluding membership and other income, net sales rose 2.1 percent to $140.61 billion from $137.74 billion.
Walmart U.S. operations saw a 1.9 percent increase in net sales to $92.27 billion from $90.52 billion, while comparable sales for the quarter rose 1.9 percent. U.S. e-commerce sales grew 35 percent, fueled by strong growth in grocery pickup and delivery.
Net sales at Walmart International rose 2.3 percent to $33.05 billion from $32.32 billion, although disruption in Chile negatively impacted operating income by $110 million.
Earnings: Fourth-quarter net income was up 12.3 percent to $4.14 billion, or $1.45 a diluted share, from $3.69 billion, or $1.27 a diluted share, in the year-ago quarter. On an adjusted basis, earnings per share in the current quarter were $1.38.
Wall Street was expecting adjusted EPS of $1.44 on revenues of $142.5 billion.
For fiscal year 2021, the company forecasted EPS at between $5.00 to $5.15, which includes a net sales growth projection of 3 percent, and U.S. comp sales at up “at least 2.5 percent.” The company is guiding U.S. e-commerce net sales growth of about 30 percent, and presumes net sales growth at its international operations at around 4 percent in constant currency. The company plans to spend around $11 billion in capital expenditures focused on store remodels, customer initiatives, e-commerce, technology and the supply chain.
Walmart said it continued to monitor the events in Chile and the coronavirus outbreak and that it has not included any potential financial effects in its assumptions in the current guidance.
CEO’s Take: “The new year has started off well, and we look forward to another strong year. We remain focused on providing our customers with the best omnichannel experience from any retailer,” McMillon said.