Media Moves

Coverage: Walmart’s profit slips ahead of holidays

November 18, 2015

Posted by Meg Garner

With holiday shopping in full swing, the world’s largest retailer Walmart is gearing up for its biggest time of the year. The Arkansas company posted its latest quarterly earnings Tuesday, and despite a growth in U.S. sales, profits for the retail giant slipped 11 percent.

Sarah Nassauer of The Wall Street Journal summed up the company’s quarter:

Wal-Mart Stores Inc.’s U.S. sales edged higher last quarter as changes in stores helped the retailer attract some of the shoppers who have skipped other chains in recent months.

Sales at the retailer’s existing U.S. stores rose 1.5% in the third quarter, the fifth straight quarterly gain after a long stretch of declines. The number of people visiting Wal-Mart’s stores also increased for the fourth straight quarter, up 1.7%, though they spent slightly less per trip.

Despite the sales gains, the Bentonville, Ark.-based company’s profit fell 11%, and Wal-Mart has warned that profit will continue to decline as it absorbs higher spending. The company lowered its long-term profit targets in August and again in October. Shares, which have fallen about 31% this year, were ahead 3.5% at $59.92 at 4 p.m. on Tuesday

Shannon Pettypiece of Bloomberg explained some of the changes Walmart is implementing in its stores:

In February, only 16 percent of its 4,600 U.S. locations met the company’s new standards for cleanliness and customer service. That number has now reached 70 percent, Wal-Mart said on Tuesday.

But McMillon’s push to modernize Wal-Mart has taken a toll on profit. The wage increase and training programs will add $2.7 billion in expenses over a two-year period, and investments in e-commerce are forecast to total as much as $1.5 billion this year.

Third-quarter net income fell 11 percent to $3.3 billion, or $1.03 a share, from $3.71 billion, or $1.15, a year earlier. Revenue dropped to $117.4 billion, missing the $118 billion that analysts had predicted.

While Wal-Mart’s online sales are increasing, the pace has slowed. They rose 10 percent in the quarter, compared with 16 percent in the previous three months and 21 percent a year earlier. The growth was dragged down by slowing demand in China, Brazil and the U.K., Wal-Mart said.

“We still have plenty of work to do,” McMillon said. “There are areas of our business that must perform better.”

Hiroko Tabuchi of The New York Times compared Walmart’s quarter to other retail stores and looked at the company’s future with the holidays right around the corner:

For the holiday season, Walmart has simplified its sales offerings and will carry most of its in-store deals and so-called doorbusters online. Greg Foran, chief executive of Walmart U.S., said last week that the retailer’s focus over the holidays would be on execution and the store experience — an approach he has taken to revamp Walmart stores over all, with better in-stock supply and customer service.

“We do expect it to be competitive,” Mr. Foran said. “It always is.” He said he expected Walmart to log same-store sales growth of about 1 percent in the fourth quarter, compared with 1.5 percent last year.

Home Depot said same-store sales in the United States jumped 7.3 percent in the third quarter, as consumers spent more on home improvement goods and appliances. The retailer said its earnings came to $1.36 a share, above analysts’ estimates, and it said it expected profit for the full year to reach the top end of its forecasts. Net sales for the quarter rose 6.4 percent to $21.82 billion.

TJX, which operates the off-price chains T.J. Maxx and Marshalls, said same-store sales rose 5 percent in the third quarter, beating analysts’ forecasts and pushing revenue 5.3 percent higher, to $7.75 billion. Earnings per share at the retailer, which sells excess name-brand apparel and home furnishing brands at steep discounts, came to 86 cents, also beating analysts’ expectations.

Still, some analysts cautioned that the somber mood after the Paris attacks — and nervousness over the safety of crowds and public spaces — could affect retailers’ Black Friday sales at a time the rush to clinch deals was already losing its appeal.

Burt P. Flickinger III, managing director of the consumer consultancy Strategic Resource Group in New York, cautioned that Black Friday had already gotten a bad reputation for security after stampedes and rowdy fights at stores in recent years. Any terrorism fears would add to those concerns, he said.

“Instead of going family shopping with the parents, the grandparents, the grandkids, what you could see more of instead is shoppers leaving the kids at home,” he said. ”Or consumers might skip Thursday and Friday, and shop in December instead, because they expect to be able to find deals then too,” he said.

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