Wal-Mart booked a fall in earnings in the fourth quarter

Wal-Mart booked a fall in earnings in the fourth quarter

Retail giant Wal-Mart says one of its priorities during the current fiscal year will be to fix US comparable store sales by sharpening its focus on lower prices.

The group yesterday (20 February) saw its share price tumble as it posted a fall in fourth-quarter earnings and lowered its fiscal 2015 sales guidance.

In the US, Wal-Mart's apparel business delivered a low single-digit positive comp, with strength across several categories. Sales of national brands, such as Avia and Russell, led the way during the quarter, and cold weather apparel and active wear posted particularly strong comps, the group said.

But while total US revenues were up 2.4%, comparable store sales declined 0.4%.

Focus on sales
As a result, CEO Doug McMillon told analysts on the firm's earnings call that Wal-Mart will focus on growth and returning to positive comps this fiscal.

"We'll leverage what's already working well in areas, such as home, apparel, and produce, and continue to drive improvement in opportunity areas such as dry goods, snacks and beverages, consumables, and entertainment.

"And, of course, we'll do this in the Walmart way - leveraging expenses and remaining true to our every-day low-price (EDLP) promise."

McMillon added it was important to be "more nimble and flexible" in the way the business is run in order to adapt to changing consumer shopping habits.

"We can accomplish this by accelerating our growth across the enterprise. This includes delivering improved comp sales by sharpening our EDLP focus and increasing merchandise innovation to drive more traffic. Comp sales improvement is a key priority, and we'll use a combination of price investment and enhanced service to accomplish this."

In particular, McMillon said Wal-Mart will elevate its merchandise offering, building on the success of home and apparel in the last year.

"Our strategy of merchandise differentiation has resonated extremely well with our savings members, and we are excited to continue this transformation. When you visit our clubs this year, you should expect to see a strong merchandise assortment and unrelenting price leadership."

CFO Charles Holley reiterated the group's focus on operating expenses across the business as a way of delivering its cost promise.

"We will continue to focus on being best-in-class operators, which will allow us to invest heavily in price and deliver stronger top-line results.

"We made significant price investments during the fourth quarter in Walmart US, along with all of our markets, and in this fiscal year, you should expect to see even greater investment in price leadership - whether you're a customer in London or Louisville."

e-commerce operations
In addition to a focus on price investment, Wal-Mart has pledged to invest further in its e-commerce operations.

In fiscal 2014, global e-commerce sales, including acquisitions, grew to more than $10bn.

McMillon said: "We see an environment to create transformative growth in global e-commerce and mobile commerce. Our ability to combine online and mobile with the assets of the world's largest retailer positions us to win at the intersection of physical and digital retail, which is a competitive advantage.

"Over the past year in particular, we have invested more significantly to improve our customer experience and fulfilment capacity.

"Cycle times on e-commerce related to capital investments are much more fluid than those for stores, so we can move faster and make decisions with speed. We'll increase our e-commerce investment as opportunities present themselves."

Barclays Capital analyst Meredith Adler said that while there were few surprises in that weather and a "still-tough macro environment" will hold down results this year, the market will be "a bit more concerned the company feels it must continue to make meaningful investments in e-commerce to achieve its full potential".  

Year ahead
For the full year, the retailer is forecasting EPS from continuing operations in the range of $5.10 to $5.45. This compares to a reported EPS of $4.85 in fiscal 2014.

"FY15 EPS guidance at the mid-point is 5% lower than consensus," noted Adler. "The investments in e-commerce, as well as plans to build more small-format stores, will also limit any chance of upside surprise in FY14."