The major retail shift Walmart has seen amid the pandemic is here to stay: CEO
Walmart Inc. shares fell after forecasting a slowdown in sales and profit for the year, plus billions of additional spending on worker salaries, automation and other technology.
The retailer said Thursday earnings per share will decline slightly in the fiscal year that just started, though will be flat or slightly up when excluding divestitures. Although U.S. comparable sales will stay positive this year, they’ll rise in the low-single-digits, below the recent breakneck rate but on pace with estimates.
Walmart shares fell 4.9 per cent in premarket trading at 7:37 a.m. Over the past twelve months, the shares have outpaced the S&P 500 but have trailed Target Corp.
After an unprecedented year marked by shortages of staples like toilet paper, surging web traffic and constant shifts in demand from quarantined consumers, Walmart expects a return to more normal business patterns in 2021. But it won’t be business as usual as the retailer is pushing into new areas like advertising and web marketplaces, looking to capitalize on the connections it already has with shoppers. Those moves, along with the wage increase, will cost money though, and there’s no guarantee they will all pan out.
These boosted capital expenditures will play a role in the next year’s financials. Walmart pledged Thursday to raise wages to an average of more than US$15 per hour, up from a current average of more than US$14 per hour. About 425,000 employees out of roughly 1.5 million total in U.S. are slated for increases, mostly in roles that support its digital and stocking operations, U.S. CEO John Furner said in a separate memo to workers Thursday.
The move comes amid calls from President Joe Biden to gradually increase the federal minimum wage to US$15 per hour as a means to lift hundreds of thousands of Americans out of poverty. Chief Executive Officer Doug McMillon recently said Walmart opposes a universal wage of US$15 as increases should reflect regional norms, and this move -- an average starting rate, not a minimum one -- means some workers will still be below that US$15 threshold. New starting rates are moving to between US$13 and US$19 per hour.
Investors have reacted negatively in the past when Walmart has boosted wages. In 2015, shares plummeted when McMillon, then fresh in the job, decided to raise starting wages to at least US$10 an hour.
In addition to spending more on salaries, Walmart says it will invest about US$14 billion this year on things like supply chain and automation, up from the US$10.3 billion it spent on capital expenditures in the year that just ended. Those kind of investments will help it expand in retail’s growth areas like microfulfillment of groceries and better digital experiences for customers. That’s increasingly important as Walmart’s U.S. e-commerce sales grew 79 per cent in the year.
Walmart said adjusted operating income in constant currency decreased 3.2 per cent in the latest quarter, primarily due to COVID-19 expenses and the company’s decision to repay property tax relief in the U.K.
At the same time, sales surged. Same-store sales increased 8.6 per cent for U.S. Walmart stores in the holiday period ended Jan. 31, well above the 5.7 per cent average estimate compiled by Consensus Metrix.
Investors will be keen to hear more about new areas of growth during presentations later this morning. Businesses like digital advertising, health care and web marketplaces deliver wider margins than Walmart’s core retail business, but also bring new competition from the likes of Facebook Inc. and Amazon.com Inc. Analysts will also be listening for details on the profitability of the U.S. e-commerce business, which has narrowed its losses but still doesn’t make money.