Walmart plans to slow new store openings, invest in online
Walmart plans to slow its new store openings and pour more money into its online efforts, technology and store remodels, the company said Thursday.
The world's largest retailer also tempered its outlook, saying it anticipates fiscal 2018 earnings per share being about flat with its fiscal 2017 adjusted earnings per share. It foresees fiscal 2019 earnings per share growth of about 5 per cent.
Walmart completed its more than $3 billion buyout of the fast-growing online retailer Jet.com last month, showing how heavily it's willing to invest to boost online sales that totalled $13.7 billion last year— still just a fraction of its annual revenue.
“This company is going to look more like an ecommerce company,'' CEO Doug McMillon told analysts at the company's annual investment meeting.
Walmart shares fell $2.16, or 3 per cent, to $69.51 in morning trading Thursday.
Like its direct store rivals, Walmart is trying to be more nimble as it fights off competition from online leader Amazon.com, whose Prime shopping program is swiftly converting members into loyal shoppers. And it faces competition from dollar stores and traditional grocers like Kroger, which are ramping up promotions.
But Walmart has seen its investments online and in the stores pay off—and it's starting to gain ground over some of the competitors.
It has launched a flurry of other changes, from making sure its vegetables look good to cleaning up its stores to being sharper on keeping prices low. It's melding online services with its massive fleet of stores—rolling out a mobile payment system to speed checkouts. And it's pushing ahead with online grocery and pick-up services.
The company is in the second year of its $2.7 billion investment in its workers that involves higher pay and more training. It says that such investments as well as the other moves are already helping to improve customer service in the stores.
Walmart had raised its annual profit outlook in August after reporting its eighth straight quarterly increase in revenue of stores opened at least a year and the seventh quarterly gain in customer traffic at its namesake Wal-Mart U.S. business. Global online sales rose 11.8 per cent in the second quarter. That's up from the 7 per cent pace of the first quarter but still far weaker than the 20 per cent increases from less than two years ago.
In contrast, Target reported that a key revenue measure was down 1.1 per cent in the second quarter, after seven straight quarters of gains. And it saw fewer customers in the store for the first time in a year and a half. Target is struggling to get its groceries right and it also didn't push the second part of its “Expect More, Pay Less'' slogan.
McMillon reiterated to analysts Thursday that he believes the Jet.com acquisition will help it attract higher-income and younger customers. The company plans to incorporate some of Jet.com's technology that lowers prices in real time. As part of the deal, Marc Lore, co-founder and CEO of Jet.com, is overseeing both the site and Walmart.com.
“I look around and see the vast assets,'' Lore told investors Thursday. “This is the perfect time to accelerate the business.''
The retailer still has plenty of challenges, notably in China, and it's struggling in the U.K and Brazil. It announced Wednesday that it was increasing its stake in JD.com, China's No. 2 e-commerce site, to 10.8 per cent from 5.9 per cent. That comes nearly four months after Walmart bought an initial stake in JD.com in a deal that also gave JD.com ownership of the Chinese e-commerce site Yihaodian, including the brand and app.
Walmart said Thursday it would spend $11 billion on capital expenditures this year, and the same for the following fiscal year. In the fiscal year ended in January, the company spent $11.5 billion on capital expenditures. But Walmart said it will be investing more of that money in e-commerce and digital initiatives.
The company also said that it plans to open 130 U.S. stores this year, but that's below its forecast issued last year that it would open 135 to 155 new stores. In its last fiscal year, it opened 230 U.S. stores. It said it plans to open another 55 U.S. stores next year. By type of store, Walmart plans to open 60 supercenters and 70 of the smaller-format Neighborhood Markets this year. For next year, the breakdown is 35 supercenters and 20 smaller-format stores.
Walmart reiterated that its earnings per share for the current year on an adjusted basis would be $4.15 per share to $4.35 per share on an adjusted basis.