After eight consecutive earnings beats, Walmart finds itself at the start of 2020 in the unusual position of missing analyst targets, as a tepid holiday season came in below expectations. Walmart is in good company, of course – joining Macy’s, Kohl’s and Target on the roster of retailers that were seeking solid performance during the year’s most active and avid shopping season – and came up short.
Amazon, notably, reported a holiday season well ahead of its Q4 predictions. Walmart’s miss is yet another sign of physical retailers’ difficulties in keeping pace with the rapidly digitizing world of retail in general – and specifically with Amazon’s continual expansion throughout every facet of the industry.
“Walmart’s results show it’s a food fight out there, with Amazon re-accelerating holiday sales growth,” Evercore Analyst Greg Melich said on Tuesday (Feb. 18).
Walmart reports earnings per share of $1.38 adjusted (versus $1.43 expected), revenue of $141.67 billion instead of the $142.49 expected, and same-store sales growth of 1.9 percent instead of the 2.3 percent forecast. Net income came in at $4.14 billion, an increase over 2019’s $3.69 billion.
Regarding the sluggish results, Walmart officials didn’t offer much in the way of explanation to shareholders in the earnings call, beyond confirming a more tepid-than-expected holiday season.
“The holiday season … wasn’t as good as expected due to lower sales volume and some pressure related to associate scheduling,” Walmart CFO Brett Biggs said in a statement. He noted that the company planned to address the scheduling issues, but didn’t elaborate further.
According to Biggs, specific areas of weakness during the holiday season – including toys, apparel, media and gaming – hampered holiday sales. Combined with the contracted holiday season due to a late Thanksgiving, those areas of softness were particularly visible. He also noted that Walmart’s approach to apparel was “more seasonal than it needed to be,” which further exacerbated issues.
As for the good news, digital sales picked up by 35 percent, driven by a strong holiday quarter. For the year, Walmart reported online sales growth of 37 percent, topping its own internal growth target of 35 percent. For fiscal 2021, the retailer expects that growth to slow, with eCommerce growth clocking in closer to 30 percent. But despite the grocery strength, reports noted that eCommerce remains unprofitable for the bottom line-focused firm, meaning 2020 will see Walmart looking to expand its investment in digital sales in areas other than grocery.
Some of that will mean expanding its buy online, pick-up in-store (BOPIS) capacity via its curbside grocery delivery, to include things like T-shirts, charger cables and other small, lightweight objects.
“We feel good about the year, though our fourth quarter was not our best,” said Chief Executive Officer Doug McMillon.
As for what comes next, full-year profits are forecasted to be between $5 and $5.15 per share, below analysts’ expectations of $5.22, while U.S. comparable sales are expected to grow at least 2.5 percent. And that forecast, according to Walmart, does not take into account possible effects from the globally spreading COVID-19 virus, which has already caused any number of issues in commerce supply chains worldwide.
Walmart’s CEO clarified in a conversation with CNBC that the possible impacts are not in the guidance, because there are simply too many unknowns at this point.
“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.
McMillon further noted, however, that shipping into and out of China has become an “issue,” and that they are expecting impacts given its long global supply chains, its 430 locations in China and its minority stake in JD.com, one of China’s leading eCommerce players. The shape that impact will take in the first quarter of the year, however, is not clear enough to factor into their guidance.
And though Walmart’s guidance for next year and the results for the final quarter of last year have roundly missed expectations, it doesn’t seem to have caused the massive market ripples or punishing effect on its stock price that Target’s miss caused a few weeks ago. Walmart’s stock price remained largely flat post-earnings news.