Walmart Stumbles With Holiday Sales and Forecast Falling Short

Walmart Inc. delivered a double whammy to investors as holiday sales couldn’t meet expectations and its outlook for the current year failed to impress investors, sending the shares lower in premarket trading.

Comparable-store sales, a key retail metric, increased 1.9% for U.S. Walmart stores in the holiday period, compared with the 2.4% average estimate, due to weak demand in the weeks leading up to Christmas. The world’s largest retailer also forecast profit this fiscal year that fell short of analysts’ expectations.

“The fourth quarter appears to have been a witches’ brew for most retailers,” Scot Ciccarelli, an analyst at RBC Capital Markets, said in a note published prior to the results.

Walmart’s lackluster results, following a similarly dour performance from Target Corp., heap more gloom on a U.S. retail sector that’s already grappling with store closures, bankruptcies and increasing uncertainty from China’s coronavirus, which has disrupted sales and supply chains at global giants including Apple Inc. The outbreak’s impact hasn’t been included the retailer’s full-year guidance but could lower first-quarter earnings by a couple of cents per share, Walmart Chief Financial Officer Brett Biggs said.

In its home market, where Walmart generates the lion’s share of its sales and profits, Walmart’s subpar holiday was due to softness in apparel, toys and gaming, Biggs in an interview, reasons also cited by Target. In apparel, it carried too much seasonal merchandise, he said. Gross profit margins also declined in the quarter due in part to changes in employee pay incentives that were a bigger factor than anticipated as fewer workers skipped shifts during the season.

“There were a number of things that were market-related but some of it was on us,” Biggs said, adding that there was “not a lot of newness” in departments like toys and video games.

Walmart shares fell 1.1% in premarket trading. Over the past twelve months, the shares have trailed those of rivals Dollar General Corp., Costco Wholesale Corp. and Target Corp.

Massive Investment

This is a make-or-break year for the world’s largest retailer, which has made massive investment under Chief Executive Officer Doug McMillon to lower prices, expand its e-commerce operations and enhance employee wages and benefits. Now, shareholders want to see a return from all that spending, particularly at its U.S. online division, which needs to find a path to profitability as it battles Amazon.com Inc.

Biggs said domestic e-commerce losses were “higher than expected” last year, but will level off or decline in 2020, with details coming during presentations to investors in New York beginning at 8 a.m. Walmart’s web sales in the U.S. rose 35% in the fourth quarter. It sees e-commerce growth at 30% this year — a sign the area is slowing some after years of expansion.

The retailer’s curbside grocery pickup service has fueled most of those gains, providing a bulwark against encroachment from Amazon.com Inc., but Walmart now needs to find a new pillar of growth online as the click-and-collect service is now available at 3,200 stores.

New Leaders

Walmart also enters 2020 with a new leadership team under McMillon, including U.S. CEO John Furner, Sam’s Club CEO Kathryn McLay and Chief Merchandising Officer Scott McCall. The reshuffle could lead to changes in strategy or execution, Jefferies analyst Christopher Mandeville said in a note.

With shares falling in advance of its investor presentations, the new management team’s job just got tougher. On the bright side, McMillon said February sales have “started off well.”

“The American consumer is still reasonably confident,” Neil Saunders, an analyst at GlobalData Retail, said in a note. “Confidence and spending power are there, however, retailers need to work much harder if they want to tap into them.”

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