We review Walmart’s fourth quarter and full year results, and the drivers behind its improved performance.
Walmart by the numbers
Walmart’s total revenue increased by 1.0% in the fourth quarter to $130.9bn
Sales in its US stores and Sam’s Club divisions increasing by 2.8% and 2.3% (ex-fuel) respectively
International net sales were down 5.1%, although increased by 3.0% on a constant currency basis. Operating income fell by 6.6% to $6.2bn
For the full year, total revenue increased by 0.8% to $485.9bn, with operating income down 5.6% to $22.8bn
Our view: further headroom for growth in the US
These results are dominated by the continued improving performance of the US business, both its stores and online. Under the leadership of Greg Foran it has delivered ten consecutive quarters of comp sales growth, with the latest being its strongest in more than four years. Since his appointment in the summer of 2014, Walmart has focused on improving its stores, initially through a back-to-basics approach, followed by significant investments in pricing, people and technology to deliver an enhanced customer experience. The changes at store level have been very noticeable.
Within ecommerce, we're at the start of phase 2, with the retailer set to benefit from last year's acquisitions, and the leadership of Marc Lore. Under his direction, Walmart is taking the game to key competitors, including Amazon, exponentially increasing the product offer through its Marketplace, and leveraging the retailer's stores, supply chain and relentless focus on efficiency to deliver a more compelling proposition for its customers.
With these investments now starting to pay-off, the focus will shift to sustaining this performance. To support this, it can call on several strategic levers including the continued roll-out of grocery ecommerce, and store remodels, with the latter accounting for an increasing proportion of its $11bn capital spend this year. With 500 remodels in the pipeline, these are expected to be a key driver of growth and help reposition the stores as the competitive landscape continues to shift. With the US business now established on firm foundations, it also enables resources to be directed to other parts of the organisation.
US: strengthening comp store sales
Comparable store sales in the US increased by 1.8%, its tenth consecutive quarter of positive sales growth. This reflects a strengthening performance, with growth ahead of expectations as the retailer benefited from stronger store traffic, up 1.4%. Its Neighborhood Market stores continue to outperform on a comp store sales basis, with sales up 5.3%. Continued improvements at store level, reflected by the reduction in inventory levels despite strong sales growth, store remodels, and strong growth from ecommerce, including the roll-out of grocery pick-up, were all important contributors to the improved performance.
Despite ongoing market deflation in food, the retailer saw a low single-digit improvement in grocery comp store sales. Consumables growth continued to be led by beauty, cosmetics and pet, reflecting improved assortment and product innovation.
US: ecommerce accelerating under new leadership
US ecommerce sales increased by 29.0%, reflecting a continued acceleration in performance, having reported growth of 20.6%, 11.8% and 7.0% in the three preceding quarters respectively. Walmart has continued to make significant investments in this space, including the acquisitions of Jet.com, ShoeBuy and MooseJaw, which have provided it with access to new capabilities and product categories. Under the new leadership of Marc Lore, the business continues to focus on driving efficiencies and bringing new innovations to market, with the recently announced free 2-day shipping program providing an uptick in sales since its launch.
International: Mexico leading international growth
Within Walmart’s international operations, sales increased by 3.0% on a constant currency basis. Ten of Walmart’s 11 markets delivered positive comp store sales, with growth led by Walmex and China, with comp store sales up 7.3% and 2.3% respectively. China continues to be a major area of focus for Walmart following the signing of a strategic partnership with JD.com, a deal which will continue to expand the retailer’s presence across the country. In the UK, Asda-Walmart delivered an improved performance, with comp store sales down 2.9%. The business is encouraged by the some of the early signs of traction as improvements are made in the customer value proposition.
Sam’s Club: new leadership to drive the business
Sam’s Club delivered an improved performance in the quarter, with comp sales (ex-fuel) up 2.4%, as it benefited from an improvement in traffic and ticket, both up 1.2%. Ecommerce contributed approximately 80 basis points to the comp sales growth, with both club pick-up and its direct to home business continuing to have strong results. With John Furner appointed to lead this business at the start of the year, it is expected to move faster with its transformation, focusing on improving its merchandise offer, including appealing to more affluent shoppers and building its private label range around the Member’s Mark brand, growing membership income and leading in digital.
Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on Walmart globally. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the region.