Wal-Mart's 4Q profit off 18%

Same-store sales, traffic rise; e-commerce buildup a drag

Graphs showing Wal-Mart Stores Inc. fourth quarter information.
Graphs showing Wal-Mart Stores Inc. fourth quarter information.

Wal-Mart Stores Inc. reported same-store sales growth and traffic increases in its U.S. stores during the fourth quarter of fiscal 2017, but the company's profit continued to be dragged down by e-commerce and other investments.

The Bentonville-based retailer reported net income of $3.76 billion, or earnings per share of $1.22, during the quarter ending Jan. 31. Net income was an 18 percent decrease from the previous year, when Wal-Mart reported $4.57 billion in fourth-quarter profits. Earnings per share also fell 14 percent, from $1.43, during the same period in fiscal 2016.

Wal-Mart's revenue increased 1 percent to $130.9 billion during the quarter, which included Christmas season sales. Analysts polled by Yahoo Finance had projected revenue of $131.2 billion and earnings per share of $1.29 for the quarter.

Despite the decrease in profit, Wal-Mart Chief Executive Officer Doug McMillon said the company turned in a "very solid quarter" and pointed to a few key factors.

U.S. same-store sales increased 1.8 percent, which was the 10th-consecutive quarterly gain. In-store traffic was up for the ninth-straight quarter, increasing 1.4 percent. The retailer also said its U.S. e-commerce sales -- which included Jet.com and its online grocery business -- grew by 29 percent as the retailer works to improve its online operations.

"We're moving with speed to become more of a digital enterprise and better serve our customers," McMillon said in a statement. "We have more work to do, but I'm pleased with our progress."

Wall Street also responded positively to Wal-Mart's results as shares of company stock finished Tuesday trading at $71.45, up $2.08.

Bob Williams, senior vice president at Simmons First Investment Group Inc. in Little Rock, said the figures represent a pretty "upbeat earnings report" for the the company during what has been a tough year overall in retail.

"I think, long-term for their survival, they're doing what they have to do to be competitive," Williams said. "Sometimes you just have to invest in infrastructure. Wal-Mart is a big enough company that they're able to take a long-term outlook despite the pressures of quarter-to-quarter earnings releases. They balance that as good as anybody."

Wal-Mart has devoted billions to employee wages and training, e-commerce growth and technological advancements in efforts to make its 4,600 stores and online offerings more appealing for customers. Last October, the retailer also said it would slow the number of new store openings and focus its spending on e-commerce, technology and store remodeling.

The investments have been a drag on profit, but Wal-Mart believes they are necessary as the shopping habits of consumers change because of online retailers like Amazon.com. Executives believe that integrating its stores and online business will ultimately lead to improved sales and earnings.

Overall, the company's U.S. business reported net sales of $83.7 billion during the fourth quarter, which was a 2.8 percent increase from a year ago. The increase during the fourth quarter was boosted by inflation of branded drug prices and an increase in prescriptions in the health and wellness business. Apparel sales also was a strength along with the grocery business, which the company said was affected by deflation in food prices.

Brian Yarbrough, a retail analyst with Edward Jones, said Wal-Mart's U.S. same-store sales increase and traffic growth were solid, especially compared with other brick-and-mortar retailers like Target, Macy's and Dillard's. But concerns remain because the expenses related to Wal-Mart's digital and e-commerce drive continue to weigh heavily on profit.

"They have to figure out how to grow profitability in their store base," Yarbrough said. "They're struggling to do that, and e-commerce is only putting more pressure. I'm not sure how long Wall Street rewards companies that just grow sales at the expense of profits. At some point that's not a positive."

Under U.S. e-commerce chief Marc Lore, Wal-Mart spent about $70 million to acquire ShoeBuy.com and recently announced the $51 million acquisition of outdoor retailer Moosejaw. He also said Tuesday that the company will continue to look at other acquisition opportunities, but did not offer specifics.

Wal-Mart has boosted its online offerings to more than 35 million to drive online sales, which remain a small fraction of the company's sales. Wal-Mart recently began offering free two-day shipping on more than 2 million items with a minimum purchase requirement of $35, replacing a subscription-based pilot program.

"I think we've got the right building blocks in place," Lore said during a conference call with reporters. "I'm feeling really good about how things are looking, and we've seen a nice uptick in sales."

Wal-Mart's international business reported net sales of $31 billion in the fourth quarter, a decrease of 5.1 percent. Sales were affected by a stronger U.S. dollar. But Wal-Mart reported that 10 of its 11 international markets saw same-store sales increases during the quarter, led by its businesses in Mexico and China.

Sam's Club, the company's warehouse division, reported net sales of nearly $15 billion, a 3 percent increase. Same-store sales also grew 3.1 percent, which was its best growth for the year according to McMillon.

Wal-Mart also reported its full-year results, with revenue growing 0.8 percent to $485.9 billion in fiscal 2017. Earnings per share were $4.38, constituting a 4.2 percent decrease from the previous fiscal year. Full-year net income fell 7.2 percent to $13.6 billion.

Wal-Mart announced a dividend increase for the 44th-consecutive year, to $2.04. Looking forward, the company expects earnings to be between $4.20 and $4.40 a share for fiscal 2018.

"We continue to have really good momentum in the business," Wal-Mart Chief Financial Officer Brett Biggs said. "It was a really nice finish to the year. I think as you look at us vs. other retailers, we're really uniquely positioned to be able to integrate what we're doing in e-commerce with what we're doing in the stores."

Business on 02/22/2017

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