As part of its annual update for investors, Walmart shared its growth forecasts and capital expenditure plans for next year, and how these align with its plans to develop a global ecosystem.
Anticipating sales growth of 3.0% in 2019/20
Building on the strong performance the business is currently delivering, Walmart is planning for 3% sales growth in constant currency next year. In the US, it anticipates delivering comp sales growth of 2.5-3.0% within its core store stores and around 1.0% at Sam’s Club. Reflecting the ongoing investments and testing of new programmes, it expects ecommerce sales to grow 35%. International sales are forecast to increase 5% in constant currency. This reflects the acquisition of Flipkart and the deconsolidation of Walmart Brazil. Commenting on the business, president and CEO, Doug McMillon, stated,
”We’re adapting and transforming with speed to better serve our existing customers and reach new ones. We’re operating with discipline, balancing our short and long-term opportunities. While we’re excited about what we’ve done so far, we aren’t satisfied. As we execute today and build for tomorrow, our associates and unique omni-channel assets position us for success.”
Technology investments impacting profitability
Walmart expects operating income to decline by a low-single digit percentage range, reflecting the acquisition of Flipkart. The retailer’s profits continue to be impacted by investments related to its digital transformation. These mainly relate to its efforts to grow its ecommerce operations, in the US and internationally and optimising new technlogies to drive operational efficiencies. Walmart views these as fundamental to the long-term success of the business.
Less than ten new stores in to open in the US
Next year’s capital expenditure will be around $11bn. This will be focused on store remodels, ecommerce, technology and the supply chain, reflecting its plans to strengthen key businesses and develop the most productive growth opportunities. While Walmart plans to open just over 300 new stores internationally, mainly in Mexico, Central America and China, it will open fewer than ten in the US. This reflects the downward trend on new space in recent years. However, the retailer will expand grocery pickup to around 3,100 US stores by the end of next year. It recently passed the 2,000-store milestone.
Pushing on with business transformation
There were no significant surprises in this update for investors. The retailer remains focused on business transformation and its strategic goals of making every day easier for busy families, sharpening its culture and becoming more digital, operating with discipline and making trust a competitive advantage. These have enabled it to deliver an improving performance, including four years of positive comp sales growth in the US.
Acquisitions, partnerships and divestments
The business is now starting to look radially different. Key initiatives taken include acquisitions, such as Jet.com and Flipkart, new partnerships, such as those with JD.com and Microsoft and the divestment of non-core activities. The retailer has also built a culture of innovation which enables it to run multiple tests throughout the business, especially those driven by new technologies. Currently Walmart is testing robotics and driver-less deliveries while embedding machine learning across many areas of the business.
Source: Walmart (* partnership or joint venture)
Global ecosystem capability
These have enabled it to start developing a global ecosystem. In addition to its core stores business, the retailer has developed capabilities across ecommerce, supply chain, advertising, digital entertainment and financial services. The ability to combine and optimise these, along with its global scale and reach, will help to position Walmart as a leader in the new era of retail.
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