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Feb 18, 2020

Walmart stumbles as holiday sales and forecast both fall short

David Burrows discusses Walmart

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Walmart Inc. delivered a double whammy to investors as holiday sales couldn’t meet expectations and its outlook for the current year failed to impress investors. The shares fell in premarket trading.

-Comparable-store sales, a key retail metric, increased 1.9 per cent for U.S. Walmart stores in the holiday period, compared with the 2.4 per cent average estimate compiled by Consensus Metrix. The company also forecast profit this fiscal year that fell short of analysts’ expectations. Click here for company statement.

Key Insights

-Walmart’s holiday sales suffered the same fate as other retailers like Target Corp. and Five Below Inc., who were hurt by a shorter selling season, warmer weather in some regions and a lack of must-have items in key categories like toys and electronics. This prompted many analysts to ratchet down their expectations for Walmart in recent weeks.

-“In the few weeks before Christmas, we experienced somesoftness in a few general merchandise categories in our U.S. stores,” Chief Financial Officer Brett Biggs said in the statement. Sales volumes were lower than expected and the company said it experienced margin pressure because of higher employee wages.

-This is a key year for the world’s largest retailer, which has made massive investments in recent years to lower prices, expand its e-commerce operations and enhance employee wages and benefits. Now, shareholders want to see a return from all that spending, particularly at its U.S. online division, which needs to find a path to profitability as it battles Amazon.com Inc. More details may be offered during presentations to investors later today.

-Walmart’s web sales in the U.S. rose 35 per cent in the fourth quarter. It sees e-commerce growth at 30% this year -- a sign the area is slowing some after years of expansion.

-Walmart’s curbside grocery pickup service has fueled most of the gains, but the company now needs to find a new pillar of growth online as the click-and-collect service is now available at 3,200 stores, more than half of its U.S. locations.

-The retailer enters 2020 with several new leaders under CEO Doug McMillon, including U.S. CEO John Furner, Sam’s Club CEO Kathryn McLay and Chief Merchandising Officer Scott McCall. The reshuffle could lead to changes in strategy or execution, Jefferies analyst Christopher Mandeville said in a note.

-The company said it’s monitoring impact from the outbreak of coronavirus in China, but hasn’t included any financial effects in its outlook. Executives will give more details during the a planned presentation today for investors.

Market Reaction

-Walmart shares fell as much as 2.4 per cent in premarket trading. Over the past twelve months, the shares have trailed those of rivals Dollar General Corp., Costco Wholesale Corp. and Target Corp.