STRONG UP NORTH
Canadian locations fare better than U.S. counterparts as overall earnings take a hit,
Wal-Mart Stores Inc. fared better in Canada than in the U.S. during the company’s first quarter of 2016, as wage increases and a strong greenback undermined overall earnings.
According to a release issued Tuesday by the world’s largest retailer, consolidated operating income declined 8.3 per cent in the first quarter, with diluted earnings per share from continuing operations of $1.03 (U.S.).
That was a penny shy of expectations, according to Janney Capital Markets analyst David Strasser, adding that increasing U.S. wages for Walmart workers to a minimum of $9 an hour could result in longer-term benefits.
“Investment in labour (about $1 billion) is necessary and the majority of that cost will come back in higher revenues, as associates spend the majority of their paycheques at WMT,” Strasser wrote in a note to investors.
By comparison, Walmart’s Canadian stores performed well with revenue up 3.7 per cent and comparable-store growth of 1.8 per cent, driven by solid Easter sales, strong performance in seasonal items and improving strength in the overall food business, including fresh, according to the company.
“We remain focused on our low-cost operating mod- el and continue to seek out opportunities to drive efficiencies to reduce expenses. I’m pleased with performance overall and expect the positive trend to continue as the competitive landscape evolves,” said David Cheesewright, president and chief executive officer of Walmart International.
More supercentre locations will be built in Canada as a result of the acquisition of 13 store locations, said Cheesewright. Walmart bought the locations from insolvent Target Canada, along with a distribution centre.
Reasons why Walmart Canada is outperforming U.S. stores: Consumer spending: Surveys shows that U.S. consumers are using extra funds from a recent tax break and drop in gas prices to pare down debt and add to savings instead of spending it in stores, according to Doug McMillon, Wal-Mart Stores Inc. president and CEO. Higher wages: Walmart increased the minimum starting wage it pays U.S. employees to $9 an hour. It is restructuring management teams in the U.S., adding back almost 8,000 department managers. The total $1-billion investment also includes training programs for associates. There was no wage increase for associates in Canada, where the minimum wage is above $9 in all provinces. Exchange rate: While Walmart reports in U.S. dollars, it operates internationally. Earnings from other countries are translated into U.S. dollars for the company’s consolidated financial report. The more valuable the U.S. dollar is, the more earnings from other countries shrink, resulting in a drop in overall earnings, despite increases in performance in certain countries.
Walmart is also increasing its spending for its online operations to between $1.2 billion and $1.5 billion this year, up from $1billion 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.
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.
Walmart said that net income was $3.34 billion 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.