Walmart Reaffirms Commitment to Low Prices, Small-Store Format

Walmart will respond to a Q4 drop in comp sales with “price investment,” “enhanced service” and an acceleration of its small store rollout, said CEO Doug McMillon on the company’s earnings call Thursday. Net sales grew $1.8 billion to $128.8 billion, or 1.4 percent, for the 14 weeks ended Jan. 31, with comp store sales down 0.4 percent. Traffic slipped 1.7 percent while tickets were up 1.3 percent, according to Walmart U.S. CEO Bill Simon.

The U.S. retail business environment was “challenging” in Q4, Simon said, crimped by the shorter holiday season, severe weather that forced the closing of more than 200 stores at some point during the quarter, and a cut in government Supplemental Nutrition Assistance Program benefits. On the positive side, Simon reported a successful Black Friday and a “strong customer response” to the one-hour price guarantee program it kicked off this year. Cyber Monday was the biggest sales day in Walmart.com history, he said.

Walmart is expanding its capital allocation plan by $600 million this year to fund the addition of 270-300 small-format stores in the U.S., said Chief Financial Officer Charles Holley. Walmart had originally planned to open 120 to 150 small-format stores and is sticking to plans to open roughly 115 new supercenters this year. Holley cited customers’ changing needs and expectations and said the smaller Neighborhood Market and Walmart Express stores will provide “convenience and easy access to fresh foods, pharmacy and fuel.” Square footage is now expected to total 21 million-23 million square feet, versus previous plans for 19 million-21 million square feet, he said.

In the entertainment category, Walmart posted a mid-single-digit percentage negative comp, Simon said. While market share increased as a result of Black Friday events, Walmart “continued to face challenges related to ongoing entertainment industry contraction,” Simon said. He attributed share gains to Walmart’s “commitment to price leadership."

Sam’s Club reported solid growth within the technology and entertainment segment during Cyber Week and the stores’ VIP event, but mid-single digit percentage negative comps during non-peak shopping period in Q4 when sales were “soft, especially in highly competitive categories like TVs, portable electronics, and wireless,” said Sam’s Club CEO Rosalind Brewer. Tech and entertainment have been “challenged over the past year, experiencing deflationary pressures and ever-changing member preferences,” Brewer said, and the Sam’s Club team is working to “reenergize our assortment,” primarily in the mobile segment. In e-commerce, Sam’s Club saw double-digit sales growth from Black Friday and Cyber Week offers, she said.

Walmart hopes to expand its global e-commerce business to more than $13 billion this fiscal year, with a focus on the U.S., U.K., China and Brazil, Holley said. Growth is being enabled by investments in fulfillment and replenishment, including a new fulfillment center that launched in Texas in September. New fulfillment centers are set to go on line in Pennsylvania and Brazil in coming weeks, he said.

Economic factors are expected to have a “more negative than positive” effect on Walmart’s outlook, Holley said. Reductions in government benefits, higher taxes and tight credit “will continue to weigh on our customers,” he said. Last fall, Walmart projected a 3-5 percent net sales increase for FY 2015. Due to economic factors and projected currency exchange rates that could have a $3.5 billion impact on net sales, it now expects net sales to fall “toward the low end” of guidance, he said. Shares closed 1.8 percent lower Thursday at $73.53.