Walmart earnings fail to hit estimates

Soft holiday sales cited by retailer

This June 25, 2019, file photo shows the entrance to a Walmart in Pittsburgh. (AP Photo/Gene J. Puskar, File)
This June 25, 2019, file photo shows the entrance to a Walmart in Pittsburgh. (AP Photo/Gene J. Puskar, File)

Walmart Inc. took a hit in the fourth quarter from weak Christmas sales as well as social unrest in Chile that disrupted operations there, the company said Tuesday.

The Bentonville-based retailer released its quarterly and year-end earnings report a couple of hours before hosting its annual meeting with investors and analysts in New York City.

Walmart posted net income of $4.1 billion, or $1.45 per share, for the quarter that ended Jan. 31, up from $3.7 billion, or $1.27 per share, in the same period a year ago. Adjusting for factors such as the events in Chile and an unspecified legal matter, Walmart earned $1.38 per share.

Those adjusted earnings missed the average earnings estimate of $1.43 per share from 28 analysts surveyed by Thomson Reuters. It was Walmart's first miss after seven-straight quarters of beating analysts' estimates.

Fourth-quarter revenue, including membership fees and other income, rose 2.1% compared with a year ago, to $141.7 billion.

Investors seemed unfazed by the earnings miss. Walmart's shares closed Tuesday at $119.63, up $1.74, or 1.5%, on the New York Stock Exchange. Its shares have traded between $95 and $125.38 in the past year.

"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," Doug McMillon, Walmart's president and chief executive, said in the earnings report. "The new year has started off well, and we look forward to another strong year."

Brian Yarbrough, a retail analyst with financial services firm Edward Jones, said Walmart is better positioned to weather weak Christmas sales than its rival Target Corp., which reported a disappointing fourth quarter. Target focuses more on discretionary items, Yarbrough said, while Walmart does more business in staples, especially groceries.

Yarbrough said he believes the reason the blip isn't affecting Walmart's stock price the way it normally would is because sales were strong at the start of the quarter and then rebounded after Christmas.

"I think investors see this as a one-time, near-term thing around Christmas," Yarbrough said, "but now sales have trended back. That's why I think you're seeing little impact on the stock."

Brett Biggs, Walmart's chief financial officer, said in the report that the retailer "experienced some softness in a few general merchandise categories in our U.S. stores" in the weeks before Christmas. While the U.S. division's grocery, health and wellness, home and electronics categories performed well, the report stated, this was partially offset by weaker sales in toys, gaming and apparel -- categories that typically do well during the gift-giving season.

Carol Spieckerman, a retail consultant and president of Spieckerman Retail, said that while "grocery may drive store traffic, it doesn't replace growth in higher-margin categories like apparel." She said its upgrades in private-brand basics "were a step in the right direction," but Walmart "is still playing it too safe" in that category.

Spieckerman also cited competition from Amazon as a factor, saying Amazon likely benefited from the shorter Christmas shopping season because it's "still better at getting products to customers pronto, and on a more consistent basis. That makes all the difference when shoppers are in a last-minute panic."

"This wasn't a blockbuster quarter for Walmart, but it was in alignment with the overall climate," Spieckerman said. Given the distractions such as the sale of ModCloth, the closure of Jetblack, and layoffs at Bonobos, "and throwing in tariff worries, Walmart's performance was pretty impressive," she said. "I see no specific cause for concern or conditions that Walmart can't weather."

Analysts at the investor meeting asked Walmart executives how the coronavirus outbreak that has stricken China may affect the retailer's operations and inventory. Judith McKenna, who heads Walmart International, said most of Walmart's stores in China remain open, though with reduced hours. "We like to keep our stores open," she said. "Customers need us."

Regarding inventory, Walmart U.S. Chief Executive Officer John Furner said it's too early to know what the effect will be. "Our first concern is for our associates and our customers," he said. "Some categories will be affected sooner than others, but it's too soon to tell."

China has about $10 billion in net sales annually, McKenna said, with a quarter of that coming from Sam's Clubs.

Walmart's U.S. division, the company's largest and which includes e-commerce sales, reported net sales of $92.3 billion, up 1.9% over last year's fourth quarter. Sales at stores open at least a year, considered a key indicator of a retailer's health, rose 1.9%. A year ago, same-store sales rose 4.1%.

Grocery sales remained strong, and online grocery was a "meaningful contributor" to e-commerce growth of 35%, the retailer said.

Walmart U.S. continued to focus on existing stores, remodeling nearly 80 in the fourth quarter and nearly 500 stores in the fiscal year. At the year's end, Walmart had about 3,200 grocery pickup locations nationwide, more than 1,600 stores offering same-day grocery delivery and about 1,500 pickup towers.

Walmart's international division reported net sales of $33 billion, up 2.3% from the same period a year ago. Six out of 10 markets, including three of its largest -- Mexico, Canada and China -- saw positive same-store sales growth. Concerns over the U.K. leaving the European Union negatively affected performance in that major market.

At Sam's Club, Walmart's warehouse club division, net sales including fuel grew 2.6% to $15.3 billion. Same-store sales, excluding fuel, edged up 0.8%. However, same-store transactions, which include online sales, increased 4.3%.

Online sales climbed 33% over the same quarter a year ago, while income from club membership rose 3%. Kathryn McLay, Sam's Club's new president and CEO, said at the investor meeting that membership is now higher than it was two years ago before the division closed about 60 stores nationwide.

For the fiscal year, Walmart reported net income of $14.9 billion, or $5.19 per share, compared with $6.7 billion, or $2.26 per share, for fiscal 2019. However, adjusted net income was $4.93 per share.

Revenue for the year rose a modest 1.9% to $524 billion. Walmart U.S. e-commerce sales increased 37%.

Walmart returned $11.8 billion to shareholders during the fiscal year through dividends and share repurchases, 12.6% less than in the previous year. In a separate statement Tuesday, the company said that its board of directors approved an annual cash dividend for fiscal 2021 of $2.16 per share, about 2% more than the $2.12 per share paid last year.

In their guidance for fiscal 2021, Walmart executives said they expect earnings per share to range from $5 to $5.15. They also expect net sales growth of about 3%; U.S. comparable sales growth of at least 2.5%; and U.S. e-commerce net sales growth of about 30%.

The guidance also includes capital expenditures of around $11 billion, with a focus on store remodels, customer initiatives, e-commerce, technology and supply chain.

The annual investor meeting is usually held in Bentonville every October. The last one was in October 2018. The meeting gives financial analysts and advisers a chance to hear presentations from Walmart's top executives on the retailer's strategic plans and outlook. A live webcast of the five-hour meeting is available at Walmart's corporate website: corporate.walmart.com.

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Graphs showing Walmart Inc. fourth quarter information.

A Section on 02/19/2020

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