Speaking to a group of analysts in New York on Tuesday, Wal-Mart Stores Inc. Executive Vice President and Chief Financial Officer Charles Holley painted a more hopeful financial picture for the company than the one revealed when it released its fourth-quarter and year-end earnings for fiscal 2014 less than a month ago.
Holley, the keynote speaker at the Bank of America Merrill Lynch 2014 Consumer & Retail Conference, said a break in the cold weather in mid-February has led to “very good” sales since then. It is not customary for Wal-Mart to make specific statements concerning revenue, aside from its quarterly earnings releases and annual shareholders meeting.
Bill Simon, president and CEO of Wal-Mart U.S., has said sales at hundreds of the company’s U.S. stores were adversely affected by wintry weather.
Holley named other factors that negatively affected Wal-Mart’s bottom line, including a foreign-currency drag; the 2 percent federal payroll tax reduction of a year ago; a delay in tax refunds last year; the political stalemate in Washington; and a reduction in federal food-stamp benefits, which he said is still being felt.
“I think these issues caused more headwinds than I can remember, at least in my career,” Holley said.
Holley provided the analysts with updated guidance for Wal-Mart’s fiscal 2015. Guidance is a publicly traded company’s official prediction of its own near-future profit or loss. In October, Wal-Mart said it expected sales growth of 3 percent to 5 percent. Holley said Tuesday that growth would be closer to the bottom end of that range, mostly because of the instability of foreign currency.
However, Wal-Mart plans to build more store space than it predicted in October. Square footage growth, pegged at 33 million to 37 million square feet, has been increased to 35 million to 39 million square feet, Holley said.
For Wal-Mart to be successful in fiscal 2015, the retailer will have to, among other things, strengthen its global compliance efforts and ethics model, continue to expand its e-commerce efforts, increase same-store sales and attract world-class talent.
“They know when they come here that they can have a very large effect on a very large number of people - millions of customers - if they work at Wal-Mart,” Holley said.
Wal-Mart recently hired 15 finance and strategy interns to work in Bentonville this summer. Holley said they come from Harvard University, the Massachusetts Institute of Technology, Dartmouth College and Duke University, among other major universities.
“We attract those kinds of students because they know they can make an impact at Wal-Mart,” he said. “They really do like the kinds of challenges that we have.”
In the arena of compliance, Wal-Mart is expected to spend up to $240 million this fiscal year on matters related to the Foreign Corrupt Practices Act, which the retailer is accused of violating in Mexico and other countries, including India and China. Wal-Mart started an internal Foreign Corrupt Practices Act investigation in 2011, and the U.S. Justice Department and the Securities and Exchange Commission are also investigating the company.
“Our shareholders and customers deserve to know that Wal-Mart is a company that believes we should always do things the right way, not just sometimes,” Holley said. “We’re working hard on this and believe we will be a world class model of ethics and compliance.
“Our brand and reputation really rely on this, so it’s extremely important to us,” he added.
Holley spent little time rehashing fiscal 2014, but made comparisons between last year and what is expected of Wal-Mart’s performance this year.
Even with $473 billion in net revenue last year, sales at stores open a year or more were weak, he said. Officials said in October that they expected 2 percent to 3 percent sales growth. The actual figure was 1.6 percent, or $7.5 billion. They anticipated the total square footage of stores to increase 3 percent to 4 percent. The actual number was 3 percent, or 32.6 million square feet. Some of the building will be new supercenters, but most of the new construction - up to 300 units - will be Neighborhood Markets and express stores.
Slower-than-anticipated growth hindered Wal-Mart’s ability to leverage its expenses, “which has been a real focus of ours for the last three years,” Holley said. These troubles were founded primarily in the retailer’s international segment - Mexico, in particular - which had a hard time getting its expense base down to the slower sales rate.
As executive vice president and CFO, Holley is responsible for accounting and control, business planning and analysis, internal auditing, treasury, tax and other finance-related areas of the company. The lead financial executives in each of Wal-Mart’s operating segments - Wal-Mart U.S., Sam’s Club and Wal-Mart International - all report directly to Holley. He also serves on the Wal-Mart executive committee, the Wal-Mart real estate committee and is the chairman of the executive finance committee.
He previously worked for Tandy Corp. and Ernst & Young.
This was Holley’s third consecutive year speaking at the consumer and retail conference.
Business, Pages 25 on 03/12/2014