Calling it a strong year filled with unprecedented challenges, Walmart said on Thursday (Feb. 18) that it was going to increase and accelerate its investment in key digital areas to help it grow faster by increasing automation and supply chain capacity.
While the company’s fourth-quarter revenues rose 7.3 percent to a better-than-expected $152.1 billion, its adjusted earnings per share of $1.39 fell short of the average estimate of $1.51, as the retailer took a 37-cent-per-share hit from a tax bill in the U.K. and over $1.1 billion in COVID-related costs. Walmart also said that its U.S. same-store sales rose 8.6 percent, while its increasingly important digital businesses saw revenues rise 69 percent. At the same time, Walmart’s international portfolio of 5,000 stores reported sales gains of 5.5 percent to $34.9 billion, led by India, Mexico and Canada.
Going forward, the operator of 11,500 stores said that recent divestitures would reduce its total sales and earnings this year. However, its continuing operations would see low single-digit sales growth, with operating income and EPS flat to up slightly. At the same time, Walmart said it planned to increase its capital expenditure budget by about 30 percent to $14 billion to stay ahead of demand, improve the customer experience and increase productivity.
“This is a time to be even more aggressive because of the opportunity we see in front of us,” said Walmart CEO Doug McMillon. “Change in retail accelerated in 2020. The capabilities we’ve built in previous years put us ahead, and we’re going to stay ahead,” he added, noting that the shift in resources and geographies would enable the company to make strategic investments into faster-growing areas.
Omnichannel Transition
“We are on a multi-year journey of modernizing our tech stack and capabilities,” Walmart CFO Brett Biggs told investors on the company’s conference call, while outlining plans to target investments that would reflect Walmart’s financial strength. “We have tremendous momentum, having just completed a year with record sales and operating cash flow. We accomplished this while accelerating our long-term strategy of transforming Walmart into a dynamic omnichannel business. It’s now time to accelerate even more.”
Sitting atop larger than usual cash holdings that nearly doubled last year to $17.7 billion, Biggs said the global retailer’s current operations barely resemble the company he joined over 20 years ago. “Walmart is different than it was three or five years ago. It’s faster, it’s more creative, it’s less risk-averse. Now is the time to play even more aggressive offense — we’re winning and we intend to keep pushing the ball aggressively down the field. Over the next few years, we’re going to step up capital investment, primarily in the U.S., to improve the customer experience and support growth and drive efficiencies.”
Focus areas for the omnichannel strategy include efforts to support efficient pickup and delivery, as well as innovation to enhance a seamless, digital customer experience. By doing so, Walmart said it will be able to deepen customer relationships and increase its share of wallet — or total retail spending — where it has slipped recently in its ongoing battle with Amazon, especially in areas like electronics and food. By doing so, Walmart said it will be able to fund the growth of related businesses such as marketplaces, advertising, financial services and data monetization.
Rising Wages, More Health
Another key area of focus — and expense — for Walmart and its 2.2 million employees will be ongoing efforts related to increasing the minimum wage to $15 per hour. Last quarter, the company said it gave raises to 425,000 associates in frontline roles, after a similar measure last fall raised pay for another 165,000 workers.
According to the company, the average Walmart associate now earns above $15 per hour, although starting wages for new employees are still below that. In addition, Walmart said it will deepen its exposure to, and investment in, its healthcare offerings to provide more customers with access to affordable care and services, including providing vaccinations across the country and in medically underserved communities.
“We are confident in our strategy. Now is the time for us to be aggressive. Speed matters. We’re going to keep the customer in the center and design for them,” Biggs concluded, calling it a time to thrive and reinvent.