Retail

Walmart earnings and outlook fall short as holiday season disappoints

Key Points
  • Walmart's fourth-quarter earnings and sales missed analysts' estimates.
  • Its fiscal 2021 earnings outlook also came up short of expectations.
  • The company reported e-commerce growth of 35% during the period.
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Walmart on Tuesday reported fiscal fourth-quarter earnings that fell short of analysts' estimates, as the retailer saw weak demand for toys, apparel and video games during the holiday season.

Its outlook for the upcoming year also came up short of expectations, as Walmart anticipates e-commerce growth will slow. Walmart said the forecast doesn't include any impact from the deadly coronavirus outbreak, though it continues to monitor the situation, and said it could end up taking a hit in China in the first and second quarters.

Political unrest in Chile, where protests have caused disruption in Walmart stores in the region, also weighed on its results in the latest quarter.

"The fourth quarter wasn't our best," CEO Doug McMillon told CNBC's Courtney Reagan.

Walmart shares were recently up less than 1%.

Here's what the company reported compared with what analysts were expecting for Walmart's fiscal fourth quarter, based on Refinitiv data:

  • Earnings per share: $1.38, adjusted, vs. $1.43 expected
  • Revenue: $141.67 billion vs. $142.49 billion expected
  • Same-store sales: up 1.9% in the U.S. vs. growth of 2.3% expected

"Sales leading up to Christmas in our U.S. stores were a little softer than expected," McMillon said in a statement.

Ahead of the holiday season, retailers knew it would be challenging since the calendar contained fewer shopping days between Thanksgiving and Christmas. For Walmart, the fourth quarter started and ended strong, but lagged in the middle, the company said.

Walmart's disappointing holiday results add to a list of retailers that saw more of the same. Target also noted weakness in toys. Kohl's said its women's apparel business underwhelmed. But Amazon last month reported holiday-quarter earnings that smashed expectations, claiming customers shopped at record levels and that it quadrupled one-day and same-day deliveries over the period.

Walmart also blamed a lack of newness in gaming for poor sales and said it didn't have the right assortment in apparel. McMillon told investors there was too much "red and green" in stores, and not enough basics. The entire apparel industry has struggled though a warmer winter, hampering sales of cold-weather gear.

"The holiday season … wasn't as good as expected due to lower sales volumes and some pressure related to associate scheduling," Walmart CFO Brett Biggs said in a statement. He said the company had plans in place to address the scheduling issues but didn't provide other details.

Walmart reported net income for the quarter ended Jan. 31 of $4.14 billion, or $1.45 cents a share, compared with $3.69 billion, or $1.27, a year eaarlier. Excluding one-time items, Walmart earned $1.38 a share, short of Refinitv expectations for $1.43 per share.

It said disruption in Chile lowered its operating income by roughly $110 million. It also took a 15 cent charge related to business restructuring, and a 15 cent charge related to certain income tax matters.

Looking to the full year, Walmart said earnings are expected to fall within a range of $5.00 to $5.15 a share. Analysts had been calling for annual earnings of $5.22 per share.

Revenue during the fourth quarter grew about 2.1% to $141.67 billion from $138.79 billion a year ago. But that was short of estimates for $142.49 billion.

Sales at Walmart stores in the U.S. open for at least 12 months, and its website, were up 1.9%, short of expectations for 2.3%.

Hurt by lower tobacco sales, sales at Sam's Club stores open for at least 12 months disappointed, climbing just 0.8%, compared with growth of 3.4% a year earlier.

Transactions at Walmart stores in the U.S. were up 1% during the quarter, but that was lower than the 1.5% a year earlier. The average ticket was up just 0.9%, Walmart said, compared with ticket growth of 2.6% a year earlier.

Grocery fuels e-commerce growth

E-commerce sales during the quarter were up 35%, fueled by its best growth yet for Walmart.com and strength in grocery. For the year, Walmart reported online sales growth of 37%, topping its own internal growth targets of 35%.

For fiscal 2021, Walmart expects that growth to slow, with an expectation e-commerce sales will rise roughly 30%.

Though Walmart's grocery business has been fueling digital sales, the e-commerce business is still unprofitable. Transportation costs and other expenses are pressuring margins. Walmart also has to figure out how to sell other products, beyond grocery, on the internet.

Walmart is expecting losses from its e-commerce operations will be flat to lower this year compared with fiscal 2020, as its global net e-commerce sales approach $50 billion.

Last week, Walmart said it would be discontinuing its text-to-order e-commerce service, known as Jetblack. It launched the business in New York in 2018, but it hasn't been able to make money on the project, nor grow the audience at scale, according to The Wall Street Journal. Instead, Walmart said it plans to incorporate some of Jetblack's technology into its own business.

Last year, it sold ModCloth, a clothing start-up it had acquired in a bid to grow the reach of its audience. Another one of its acquisitions, Bonobos, laid off employees last year. And Bonobos founder Andy Dunn late last year announced his departure from Walmart. Dunn had been tasked with helping the head of Walmart's U.S. e-commerce business, Marc Lore, acquire digital brands.

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Watch CNBC's full interview with Walmart CEO Doug McMillon on fourth-quarter earnings

Walmart's executive ranks have seen other recent changes.

Last month, it said its chief merchant Steve Bratspies would be departing. That news came after the chief merchant for Walmart's U.S. e-commerce business, Ashley Buchanan, left in December to become CEO of crafts retailer Michael's. And last summer, Walmart integrated many Jet.com positions into its own business, eliminating the Jet.com president role.

Coronavirus impact hard to gauge

Walmart isn't yet sure how much of a hit it will take because of the deadly coronavirus outbreak that started in China and has now spread across the globe. But it will likely take one.

"It's not in our guidance," McMillon told CNBC's Reagan.

"It's too difficult to tell at this early stage exactly how to forecast it," he said about the coronavirus. "We are still operating our stores [in China]. Almost all of them are open ... but operating on reduced hours," with a focus on selling food and consumables, he said.

Walmart has 430 locations in China. It also owns a minority stake in JD.com, one of China's leading e-commerce players.

"Shipping and product coming out of China ... into the U.S. ... is an issue," McMillon said. "It's too difficult to call right now exactly what will happen in the [first] quarter. But we've said, because of what's happening on the ground in China ... we do expect to have some impact. But we are not currently putting that into our guidance."

Walmart shares are up nearly 18% over the past 12 months. It has a market value of roughly $334.2 billion.

Read the full press earnings press release here.

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