Key Takeaways From Wal-Mart’s Q4 Earnings
Wal-Mart (NYSE:WMT) reported mixed fourth quarter results on Tuesday, as its bottom line beat analyst expectations but revenues missed. On a reported basis, the company’s revenue increased 1% year over year (y-o-y) to $130.9 billion, driven by growth in the domestic market due to its marketplace offerings and benefits from Jet.com, partially offset by the negative impact of food deflation and foreign currency fluctuations. Additionally, the retailing giant’s consolidated net income declined 18% y-0-y to $3.7 billion. Wal-Mart also posted adjusted earnings per share of $1.30, down 13% y-o-y but near the upper end of its guidance range.
Wal-Mart’s e-commerce sales popped up 31% y-o-y, a mark that topped estimates. In terms of the company’s segments, Wal-Mart U.S. delivered a strong top line performance with comparable sales of 1.8%, which exceeded the company’s guidance. However, the retailer’s international sales were down 5% y-o-y to $31 billion during the quarter. In addition, Sam’s Club comparable sales grew 2.4% y-o-y (ex. fuel) in the quarter. On the cost side, Wal-Mart’s total operating expenses increased in the quarter, primarily due to ongoing investments in people and technology. For the full year, Wal-Mart generated $31.5 billion in operating cash flow and $20.9 billion of free cash flow, which was up by more than 30% y-o-y.
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E-Commerce : Strong Growth Driver
Wal-Mart’s e-commerce division includes all web-initiated transactions including those through Walmart.com such as ship-to-home, ship-to-store, pick up today, and online grocery, as well as transactions through Jet.com. E-commerce is also the backbone of the new free two-day shipping with a $35 minimum order available at Walmart.com. Globally, on a constant currency basis, the company’s e-commerce sales and GMV increased 15.5% and 17.5%, respectively, in this quarter. Going forward, the acquisitions of ShoeBuy and Moosejaw, along with Hayneedle, could provide the company with new categories of merchandise. From a marketplace perspective, the company covers more than 35 million SKUs to date.
Wal-Mart U.S. Continues To Grow
In Wal-Mart U.S., strong comparable sales growth of 1.8% was driven by a 1.4% increase in customer traffic. In fact, all store formats had positive comparable sales and e-commerce contributed approximately 40 basis points to the segment in the fourth quarter. To add to that, the company reported e-commerce GMV and sales growth of 36% and 29%, respectively, in the Walmart U.S. segment. In addition, the company reported positive comparable growth in groceries despite ongoing market deflation in food, which negatively impacted the Food comparable growth by approximately 90 basis points. The segment’s operating expenses increased 4.6% y-o-y, primarily due to the associated wage rate increases as well as investments in technology and e-commerce.
Future Outlook
Wal-Mart plans to open fewer new stores overall in fiscal 2018, particularly in the U.S., and aims to prioritize the company’s comparable sales growth and accelerate e-commerce growth, including the third-party marketplace. The retailer anticipates a currency impact on net sales of approximately $3 billion for the fiscal 2018. On a reported basis, the company expects net sales growth of between 2% and 3%. In addition, the company also expects its capital expenditures (excluding acquisitions) to be approximately $11 billion for the full year. Moreover, it expects its full year adjusted EPS to range between $4.20 to $4.40, and the full year effective tax rate to be around 32%. The retailer anticipates its operating income to decline slightly in fiscal 2018, driven in part by continued strategic price investments, partially offset by a more disciplined approach to expenses.
For the upcoming quarter, Wal-Mart expects comparable sales growth for Wal-Mart U.S. to range between 1.0% to 1.5%, and Sam’s club (ex. fuel) comparable sales to be around 1.0%. Additionally, the company also expects adjusted earnings per share in the range of $0.90 to $1.00 in the first quarter.
Please refer to our complete analysis for Wal-Mart
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