Walmart Stores reported sluggish sales and a seven per cent drop in first-quarter profit as worker pay raises, spending on e-commerce and currency fluctuations put pressure on the bottom line at the world's largest retailer.
The company also reported a 1.1 per cent increase for same-store sales at its U.S. Walmart stores, its third consecutive quarter of increases. However, that growth came below analysts' expectations.
By comparison, Walmart's Canadian stores performed well with revenue up 3.7 per cent and same-store growth of 1.8 per cent, thanks partly to improvements at its food business, including fresh, and strong performance in seasonal items and sales during Easter.
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During a conference call with analysts on Tuesday, David Cheesewright, president and CEO of Walmart International called out the strong Canadian performance, noting it was the fourth consecutive quarter that same-store sales went up.
“We maintained solid growth amid a dynamic, competitive environment,” he said.
Referring to Nielsen data, Cheesewright pointed out that Walmart Canada grew its market share in food, health and wellness, consumables, and infant categories for the 12 weeks to April 18. He did not provide specific numbers from Nielsen.
Traffic at Canadian stores during the quarter was essentially flat, up just 0.1 per cent from a year earlier.
Walmart Canada has one fewer rival to contend with since Target closed all its Canadian stores in recent weeks but continues to face stiff opposition from Canada's domestic retail chains, particularly in grocery.
Walmart Canada said May 8 that it plans to spend about $350 million to acquire and renovate 13 former Target Canada stores and a distribution centre to add to its own retail network.
That’s on top of the 29 Supercentre projects that Walmart had planned for this year already.
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Overall, Walmart’s profit and total sales missed Wall Street estimates. The weakness adds to questions about the health of consumer spending. The latest government retail sales figures showed spending was flat in April, and Macy's, Kohl's and J.C. Penney announced disappointing results despite low gas prices and improvements in the job market.
The retail industry also is battling temporary issues, such as the labour dispute at West Coast ports that delayed shipments of merchandise.
Walmart itself is a barometer of consumer spending. Its challenges reflect the struggles of its low-income shoppers, who are being squeezed by stagnant wages and higher living costs. Walmart pointed out that its customers were either pocketing tax refunds and their savings from lower gas prices, or using them to pay down debt or bills like utilities.
Walmart also is facing fierce competition from the likes of online king Amazon.com, dollar stores and grocers. It's also dealing with a shift among shoppers seeking the convenience of small stores or buying on their mobile devices and PCs.
In response, Walmart is rapidly opening smaller stores. It is also increasing its spending for its online operations to between $1.2 billion and $1.5 billion this year, up from $1 billion last year. It announced last week it was testing an unlimited free-shipping service for $50 a year, undercutting Amazon's popular Amazon Prime, whose annual dues are $99.
In Walmart’s U.S. division, the company is trying to improve it selection and customer service, while making sure it has the lowest prices. Walmart is also aiming to improve the freshness of its produce.
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The company expects to see improved results by the holiday season, according to Greg Foran, who had been president and CEO of Walmart Asia and took over Walmart’s U.S. business last summer.
As part of the strategy, the company raised the minimum wages for its hourly workers to $9 per hour in April. By February 2016, all hourly workers will make at least $10 per hour.
That comes at a cost. It's part of a $1 billion investment in its workforce that also includes improved training.
Walmart is hoping that by investing in its people, it will improve customer service, resulting in higher sales.
``We're not interested in reaching our goals, but reaching them in a way which is sustainable for the long term,'' Foran said. ``This requires a steady execution, a pace that is fast but calculated, and one that allows us to get it right.''
But such investments are squeezing profits in the short term.
Walmart said that net income was $3.34 billion, or $1.03 per share, for the three months that ended April 30. That compares with $3.59 billion, or $1.11 per share, a year earlier.
Net revenue was down slightly to $114.0 billion, from $114.2 billion in the year-ago quarter. Analysts were expecting $1.04 per share and revenue of $116.27 billion, according to Zacks Investment Research.