Wal-Mart Stores Inc. bucked the negative trend that many retailers experienced during the punishing holiday season to grow market share. Wall Street approved, sending shares of the retailer up 3 percent in trading Tuesday on the New York Stock Exchange.
On Tuesday, the retailer reported that net revenue in the fourth quarter ended Jan. 27 rose 1 percent to $130.9 billion, from $129.6 billion in the 2016 period. Comp-store sales increased 1.8 percent in the quarter, exceeding the company’s guidance of 1 percent to 1.5 percent. Wal-Mart reported diluted earnings per share of $1.22 in the fourth quarter.
Net sales at Wal-Mart U.S. grew 2.8 percent to $83.7 billion in the 2017 fourth quarter, from $81.5 billion in year-ago results. Wal-Mart International net sales declined 5.1 percent to $31 billion.
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But the sales increase came at a cost. Net profits for the fourth quarter dropped 17.9 percent to $3.76 billion from $4.57 billion in the corresponding period a year earlier. For the full year, profits fell 7.2 percent to $13.64 billion from $14.69 billion.
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Doug McMillon, Wal-Mart Stores president and chief executive officer, said the dollar’s strength against the peso negatively impacted international performance. But he said 10 out of 11 markets posted comp-store sales increases. Sam’s Club’s performance improved with net sales rising 3 percent to $14.9 billion, from $14.5 billion.
McMillon said the retailer is quickly becoming more of a digital enterprise. “Buy online, pickup in store grew 27 percent during the holidays. Our holiday fulfillment network worked very well and is the backbone of our new two-day free shipping promise. Customers during the holiday season responded to consistent, everyday low prices and a simplified integrated multichannel experience.”
Wal-Mart U.S. e-commerce growth was strong with sales and GMV increasing 29.0 percent and 36.1 percent, respectively, including Jet.com and online grocery.
With Amazon clearly in Wal-Mart’s sights as the company continues to invest in e-commerce in the U.S. “We’re accelerating growth and gaining traction. We’re the second-largest U.S. online retailer by revenue and one of the top three online retailers by traffic,” said McMillon, adding last year’s Jet.com acquisition is quickly being integrated into the company.
Walmart.com swelled to 35 million stockkeeping units and free two-day shipping with a minimum order of $35 was recently announced. Amazon responded by quietly lowering its free shipping threshold for non-Prime members to match Wal-Mart at $35, but its deliveries will still take up to a week to arrive.
“Our acquisitions of Shoebuy.com, Moosejaw.com and Hayneedle.com have given us immediate expertise and capabilities in new, more upscale categories of merchandise,” McMillon said. “We’re also leveraging the strengths of walmart.com and Jet.com to make both platforms better.”
Among international markets, Walmex has strong momentum with comps up over 7 percent this year. “China is a key growth opportunity,” McMillon said. “We increased our ownership of JD.com to 10 percent and opened a Wal-Mart import store on the platform.”
The U.K. faced challenges as net sales declined 0.6 percent and comps fell 2.9 percent in the quarter. “We have a lot of work to do in this market,” McMillon said, adding, that the company divested noncore businesses such as an apparel chain in Mexico and shopping malls in Chile.
Operating expenses increased 4.6 percent in the fourth quarter and 8.1 percent for the year, primarily due to associate wage increases and investments in technology and e-commerce. Wal-Mart U.S. operating income declined 2.5 percent in the fourth quarter and 7 percent for the year. The 2017 fourth quarter included a $249 million charge for discontinued real estate projects.
Gross margin decreased 8 basis points in the quarter with savings from merchandise procurement and lower logistics costs offset by execution of the price investment strategy and post-holiday markdowns.
Wal-Mart raised its full-year 2018 EPS guidance to $4.20 to $4.40 and EPS for the first quarter of 2018 of between 90 cents and $1. First-quarter 2018 comp-store sales guidance for Wal-Mart U.S. is 1 percent to 1.5 percent and 1 percent at Sam’s Club, excluding fuel.
Wal-Mart posted three straight quarters of positive comparable sales in fiscal 2017. The retailer, which is upgrading its U.S. stores, expects capital expenditures of $11 billion in fiscal 2018.
Wal-Mart raised its full year adjusted EPS guidance range to between $4.20 to $4.35, up from $4.15 to $4.35 previously. It now expects its full-year effective tax rate to range between 31 percent and 32 percent. For the first quarter of 2018, comp sales growth for Wal-Mart U.S. and Sam’s club, excluding fuel, is expected to be in the 1 percent to 1.5 percent range. Wal-Mart expected adjusted EPS of $1.18 to $1.33 in the fourth quarter. Reuters analysts forecast forth quarter revenues of $131 billion and EPS of $1.29, in line with guidance.
For the first time, Wal-Mart will run commercials during the Academy Awards Feb. 26 on ABC. Directors Seth Rogan and Evan Goldberg of “Sausage Party”; Antoine Fuqua, “Training Day”; and Marc Forster, “Monster’s Ball,” each created a 60-second spot. While Target routinely showcases its brand during the Oscars, the move is a departure for the Bentonville, Ark.-based retailer.