Northwest Arkansas Democrat-Gazette

Path forward for Wal-Mart on digital side

Retailer slows store growth, puts more into e-commerce

- ROBBIE NEISWANGER

Wal-Mart Stores Inc. expects U.S. e-commerce sales growth of 40 percent in the next fiscal year and plans to open another 1,000 grocery pickup locations, continuing its push to challenge Amazon.com for retail sales by emphasizin­g the integratio­n of its online and in-store businesses.

The Bentonvill­e-based retailer provided an update of its progress and a peek at plans moving forward during an annual meeting with investors Tuesday in Bentonvill­e. Efforts include WalMart’s ongoing plan to slow the number of new store openings and devote more of its capital to its e-commerce business, technology and current store remodels.

“No doubt we are in a transforma­tional period of history,” Wal-Mart Chief Executive Officer Doug McMillon told investors. “Business is transformi­ng, and WalMart is transformi­ng, too. … Our future is looking more digital.”

Wal-Mart’s message was applauded by Wall Street during Tuesday trading. Shares of company stock climbed 4.5 percent to $84.13, reaching a 52-week high.

It was a sharp contrast from two years ago, when Wal-Mart’s stock fell 10 percent to $60.03 during its 2015 investors meeting. Wal-Mart told investors then that the company could see earnings per share fall as much as 12 percent in fiscal 2017 as it increased wages and ramped up its e-commerce spending.

“I think [Wal-Mart’s] message has been really consistent,” Ben Bienvenu, a retail analyst with Stephens Inc., said about Wall Street’s positive reaction Tuesday. “They offered commentary that really underscore­d the confidence they have in the plan they laid out two years ago and the high level of execution which they’ve had against that plan. I think they’re really operating at a high level.”

Wal-Mart had plenty to talk about during Tuesday’s

meeting, which came a little more than a year after the company finalized its $3.3 bil- lion acquisitio­n of Jet.com to accelerate its digital pace.

Since then, Wal-Mart has acquired online retailers like Shoes.com, Moosejaw, ModCloth and Bonobos under the direction of U.S. e-commerce chief Marc Lore.

Wal-Mart also has introduced several initiative­s aimed at capitalizi­ng on its strengths, which include a vast network of U.S. stores, fulfillmen­t centers and growing e-commerce business. The company introduced free twoday shipping earlier this year and began offering a discount pickup program, which offers lower prices on online items if customers are willing to pick them up in stores.

Wal-Mart also is testing numerous delivery methods, including a partnershi­p with Uber on grocery deliveries. Wal-Mart also is using its own employees to deliver packages

in other tests. Silicon Valley customers can have delivery workers put groceries in their refrigerat­ors in another test.

The retailer continues to invest heavily in its online grocery pickup business, which is currently available at about 1,000 locations. Wal-Mart said Tuesday that by the end of next year, it plans to double the number of stores where the service is available as it tries to win shoppers.

“Online is the buzzword right now. Online is what gets everyone excited,” Brian Yarbrough, a retail analyst with Edward Jones, said about the reaction to Wal-Mart’s updates Tuesday. “Talking about

everything they’re doing with online is obviously getting Wall Street really jazzed up.”

Wal-Mart’s U.S. e-commerce operation has produced sales growth of about 60 percent through the first half of the current fiscal year, and the retailer expects the business to contribute $11.5 billion in revenue.

But Yarbrough reiterated that Wal-Mart’s online business remains a fraction of the company’s annual revenue.

Efforts to grow the e-commerce business continue to come with hefty costs as well, which have affected profits.

“People are giving them the benefit of the doubt,” Yarbrough said. “They’re pulling the right levers.”

Brett Biggs, Wal-Mart’s chief financial officer, acknowledg­ed Tuesday that the company still was “not where we want to be” from an expense standpoint. McMillon added that the company is committed to cost reductions and thinks the timing is right to “act on costs in a more aggressive way.”

Biggs said “zero-based” budgeting methods — justifying every expense each quarter — will be in place for some areas as Wal-Mart tries to free up funds to continue to fuel its e-commerce business and other initiative­s. The company projects capital expenditur­es to be about $11 billion for fiscal 2019.

Biggs highlighte­d one cost-cutting measure Tuesday: Wal-Mart has shortened the length of its store receipts, which has saved $7 million so far this year.

“They’re taking the online competitio­n and Amazon very seriously,” said Bob Williams, senior vice president and managing director of Simmons First Investment Group Inc. in Little Rock. “They’re trying to tighten up in any place they can tighten up to be as competitiv­e as they can possibly be. We’ve seen that previously with the eliminatio­n of some levels of management and other actions they’ve taken to make themselves competitiv­e in the new world of retailing.”

Wal-Mart insists that stores will continue to play a vital role in its plans even though the company will reduce the number of new openings in the U.S. to no more than 25 — 15 Supercente­rs and 10 Neighborho­od Markets — during the next fiscal year. Wal-Mart said it will open about 255 stores in internatio­nal markets.

McMillon said the company is confident that a combinatio­n of “physical and digital” is the future of retail. He also said that despite Wal-Mart’s efforts to explore grocery delivery and pickup options, the vast majority of grocery transactio­ns will be done by customers shopping in stores for a “long time to come.”

Wal-Mart reiterated its adjusted earnings per share guidance in the current fiscal year of $4.30 to $4.40 before Tuesday’s meeting. The company expects adjusted earnings per share to grow 5 percent during fiscal 2019, with a net sales increase of 3 percent.

Wal-Mart also introduced a new two-year, $20 billion share buyback program Tuesday. It replaces a previous $20 billion program that was announced in October 2015.

“We feel good about where we are as a company,” Biggs said. “Our plans are designed to win with both customers and shareholde­rs as we operate within our financial framework. Our financial position is strong, which allows us to invest in the business while returning significan­t cash to shareholde­rs.”

Newspapers in English

Newspapers from United States