Thursday, January 21

Walmart warns it will ‘test a lot, fail a lot;’ cuts profit forecast


(Reuters) – Walmart Inc’s (WMT.N) chief executive officer on Tuesday urged investors to rethink the company’s business, touting its various tech investments to grow online sales at a time it is battling Amazon.com (AMZN.O) for market share.

FILE PHOTO: The logo of Walmart is seen outside of a new Walmart Store in San Salvador, El Salvador, August 21, 2018. REUTERS/Jose Cabezas/File Photo

The retailer also lowered its earnings forecast for the year and said its e-commerce growth next year would be slower than in the current fiscal year ending in January.

“I want to challenge your thinking about Walmart,” Chief Executive Doug McMillon told the Bentonville, Arkansas, company’s annual investor meeting, which was webcast. “We are getting to reimagine retail and our business … expect us to test a lot and fail a lot.”

McMillon highlighted the company’s patents in last-mile delivery, biometrics and augmented reality, as well as investments in machine learning in areas like merchandising, blockchain to improve food safety and traceability. He also cited pickup towers in stores to boost online sales and various e-commerce delivery options.

Grocery sales make up 56 percent of Walmart’s revenue and McMillon emphasized Walmart’s advantage in the food category, an area rival Amazon is trying to crack. He said Walmart can offer fresh food within 10 miles of 90 percent of the U.S. population.

Walmart is doubling down on online grocery delivery and pickup options. By the end of the year, 800 U.S. stores will offer grocery delivery and more 2,000 will offer a pickup service.

Investors shrugged off the company’s guidance and Walmart’s shares, which fell more than 2 percent in pre-market trading, were up 2.1 percent at $95.85 per share in early afternoon trading.

E-COMMERCE GROWTH TO SLOW

Walmart’s earnings next year will be eroded by its $16 billion acquisition of Indian e-commerce firm Flipkart in May, its largest-ever deal, to compete with Amazon in an important growth market. The company at the time had indicated the deal would lead to a per-share earnings hit of 25 to 30 cents this fiscal year and 60 cents next fiscal year.

The lower forecasts for earnings and online sales come after Walmart posted its best quarterly U.S. sales growth in a decade in August, helped by lower unemployment and tax cuts that boosted consumers’ spending power.

Walmart now expects to earn between $4.65 and $4.80 per share for fiscal 2019, down from an earlier forecast of $4.90 to $5.05 per share.

Walmart also estimates a 35 percent growth rate for its online business in the year ending in January 2020, against expectations for 40 percent growth in the current year. Walmart said the 35 percent growth will be off a bigger base. The retailer also expects its e-commerce business to post a slightly greater operating loss next year, Chief Financial Officer Brett Biggs said.

The company has made several efforts in the past year to boost online traffic. These include a website redesign, more online grocery offerings and acquisition of fashion brands to improve its appeal to millennial shoppers, who typically have avoided purchasing on the retailer’s websites.

Walmart has been on an acquisition spree in the U.S. online fashion space, buying online lingerie retailer Bare Necessities last week after purchasing plus-sized clothing startup Eloquii a week earlier.

Over the years, Walmart has worked to use physical locations as distribution points for online orders of groceries and other goods in order to retain buyers who increasingly expect quick, cheap shipping.

With a steady rise in online shopping, Walmart’s e-commerce sales growth has been outstripping brick-and-mortar sales, leading the company to slash new store openings. The retailer plans to open fewer than 10 U.S. stores in the next fiscal year.

For fiscal 2020, Walmart expects comparable sales growth of 2.5 percent to 3 percent. That follows expected growth of about 3 percent this year, which would be the fastest pace since 2008.

Overall sales growth during fiscal 2020 is likely to be 3 percent or more but could be negatively impacted by the sale of operations in Brazil and a planned reduction in tobacco sales at Walmart-owned warehouse chain Sam’s Club.

Walmart also expects earnings to decline by a low single-digit percentage range compared with fiscal 2019 due to the Flipkart deal. Excluding the impact, it is expected to rise by a low- to mid-single digit percentage range.

Reporting by Nandita Bose in New York; Editing by Bernadette Baum, Dan Grebler and Bill Trott

Our Standards:The Thomson Reuters Trust Principles.

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