The world's biggest brick-and-mortar retailer, Walmart, is taking a page from Amazon's playbook to boost its online sales, and it's turning to the cloud. Jane Lee reports. Video provided by Reuters Newslook
Walmart's online sales during the all-important holiday season slipped significantly from the previous quarter, rattling investors and putting its shares on track to have their worst trading day in more than two years.
Walmart’s shares, which were down $10.13, or 9.7%, at $94.71 in late morning trading, were potentially headed to post their worst day since October 2015. The stock’s big drop also dragged down the Dow Jones industrial average, accounting for nearly two-thirds of the blue chip stock index’s 107 point decline.
Walmart's e-commerce sales were up 23% in the final quarter of 2017, and soared 44% for the full year to $11.5 billion. But the fourth quarter's performance reflected a steep slide from the previous three month period when online sales jumped 50%.
The company said that the decrease was mostly expected, as sales growth on Jet.com, which it acquired in 2016, slowed. But not having enough inventory to meet some shopper demand during the holiday season also contributed to the dip.
Walmart's profits also took a hit, down to $2.17 billion or 73 cents in diluted earnings per share from $3.75 billion, or $1.22 a share during the same quarter the previous year. Adjusted earnings came in at $1.33 per share.
For the full year, profits plunged 27.7% to $9.86 billion or $3.28 per share. That was down from $13.6 billion, or $4.38 in diluted earnings per share, or $4.42 when adjusted. Those full year numbers also missed the expected $4.98 per share forecast by analysts with S&P Global Intelligence.
The lower than expected uptick in online sales cast a shadow over Walmart's more upbeat projection that it will roar back this year with 40% growth.
"The risk for achieving that is a little bit higher considering that they missed this current quarter,'' says Joseph Agnese, of CFRA Research, who downgraded Walmart's stock from a "strong buy'' to a "buy,''
Overall, the retailing giant reported that revenue in the fourth-quarter rose 4.1% to $136.3 billion as compared to the same period in the previous year. Those results were in keeping with the generally upbeat holiday period that most retailers encountered last year, by far the most crucial season when it comes to ringing up sales.
In its battle with Seattle-based Amazon, Walmart has attempted to make more inroads on its turf. In addition to doubling the number of stores offering online grocery delivery, it has encouraged shoppers to order online, then pick up their items at stores, which it sees as a key advantage.
Walmart has also steadily scooped up e-commerce sites, like Jet.com and upscale menswear site Bonobos to strengthen its online presence and woo a more affluent customer. And earlier this month, Walmart dropped "stores" from its corporate name, signaling its effort to be seen as more than a traditional,store-based company.
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Store sales and traffic improved last year. Walmart said its sales at U.S. stores open at least a year -- an industry measure that takes growth or reduction of units into account -- were up 2.6% in the fourth quarter, and 2.1% for the full year.
“Our stores are executing better, we’re innovating more, and customers are responding with higher sales and traffic,’’ Doug McMillon, Walmart's president and CEO said in an earnings call with investors Tuesday.
While mass-merchandising competitor Target said in December that it had bought delivery service Shipt and Amazon was reportedly considering whether to launch a delivery service that might compete with UPS and FedEx, Walmart has been testing more creative solutions. Last year, for instance, Walmart said it would try out a program in which employees would drop off customer orders on their way home.
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Besides Amazon, Walmart has been facing cost challenges. It recently announced it would boost its minimum hourly wage to $11, a move it said it can afford because of President Trump's tax cut. It has more than 1 million U.S. hourly employees, making it the nation's largest employer.
And last month, Walmart announced it would cut costs by closing 63 of Sam's Club membership warehouse stores. More recently, though, it said it is going to offer expanded free shipping for premium members at those stores and will simplify the membership levels.
Neil Saunders, managing director of retail consultancy GlobalData said that Walmart's financial performance was strong, including in the area of online sales. "There will be some disappointment that growth slowed from the 50% increase posted last quarter,'' he said in a note. but "a 23% uplift demonstrates that Walmart still has momentum in e-commerce.''
However, catching up to online titan Amazon remains a steep challenge, Saunders says.
"There are many demographics, especially younger and professional segments, for whom Walmart is not the destination of choice online,'' he wrote. "This isn't because it doesn't sell what they want . . . It is because they do not associate Walmart with online or they default to Amazon.''
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