Arkansas-based big-box retailer Walmart (WMT, Financial) came out with its fiscal 2015 fourth quarter and full year numbers recently. While the company’s top-line displayed good growth on the back of improving comp sales at Walmart U.S. and Sam’s Club, Walmart International witnessed foreign currency headwinds, pushing down what could have been an even better performance. During the period, Walmart took some very crucial decisions and changed a few policies that it believes will help to strengthen the brand and provide even better services to its customers. Here’s a lowdown on the activities of the period.
Numbers of the quarter
Let’s first take a look at the quarter’s performance. During the period Walmart reported consolidated revenues worth $131.6 billion, up $1.9 billion or 1.4% year on year. Had it not been for the exchange rate fluctuations, the top-line would have been higher by $2.6 billion. Apart from this the 0.5% decline in memberships and other income also took a toll on the figure. For Walmart U.S. the net sales growth came to 4.1% at $3.1 billion compared to last year’s figure. During the three months ended January 2015, comparable store sales surged by 1.5%, topping analyst and company’s expectations on the back of better than anticipated traffic.
What makes this quarter significant is the fact that it’s the first time, since the third quarter of fiscal 2013, the retailer reported positive traffic comps driven primarily by the higher amount of disposable income in the hands of the consumers thanks to lower fuel prices. Income from continuing operations came to $5.19 billion resulting in an underlying EPS of $1.62. However, after accounting for minority interest, the bottom-line came to $4.96 billion, resulting in a reported earnings per share of $1.53, up from previous year’s $1.34 a share. The EPS figure could have been better by $0.08 absent the wage and hour litigation matter and store closures in Japan.
Source: Walmart Press Release
For the full year, consolidated revenues came to $485.7 billion as net sales increased $9.2 billion or 1.9% compared to fiscal 2014, membership and other income increased by 6.3%. Currency exchange rate fluctuations negatively impacted revenue by approximately $5.3 billion. For Walmart U.S., net sales increased $8.6 billion or 3.1% and reached $288.0 billion, and comparable store sales improved 0.5%. Walmart CEO Doug McMillon said during the earnings call, “Overall, we had a good fourth quarter to close out our fiscal year, with underlying earnings per share of $1.61. Walmart U.S. delivered better than expected comp sales. Sam’s Club had its best performance of the year, and Walmart International had solid sales and profitability.”
Physical stores and ecommerce
The year turned out to be an exciting one for the company as it reported improvement in sales and operating income every quarter and the fourth quarter was the strongest in more than two years. During the year Walmart opened 511 new stores across the globe and added a whopping 33 million square feet of retail space. Neighborhood Market stores helped the company much in booking better than anticipated results and delivered around 7.7% of comps for the quarter. In fiscal 2016 the company plans to open 60 to 70 supercenters, and another 180 to 200 Neighborhood Markets, including 10 to 15 smaller-format locations, resulting in addition of approximately 15 to 16 million retail square feet.
Turning to ecommerce, the management would have liked to see even better figures. In fiscal 2015 ecommerce sales grew by almost 22%, contributing around 3 basis points to the overall comp performance, and the management is on its toes to balance growth and profitability, thanks to the incredible growth in shopping via mobile devices. According to Doug McMillon, “nearly 70% of walmart.com traffic in the U.S. came via mobile during the recent holiday period.” Walmart is taking e-commerce pretty seriously and from the second quarter of fiscal 2016 the company plans to add four fulfillment centers that will help to expand the retailer’s reach and efficiency.
CapEx and ROI and more
During the year the retail major spent as much as $12.2 billion in capital expenditures. However, this figure was lower than the range of $12.5 billion to $12 billion that Wal-Mart management had initially planned. Even return on investment (ROI) came lower at 16.9%, compared with 17% which management had initially expected. Walmart believes this happened primarily due to continued investments in store growth and ecommerce initiatives, offset by currency exchange rate fluctuations. Nevertheless, the company was able to make its investors happy as it returned a total of $7.2 billion through dividends and share buybacks, and also managed to end the year with free cash flow of $16.4 billion, up from last year’s $10.1 billion.
What else is going on?
Under the able leadership of Doug McMillon, Walmart is going through a slight shift in its strategy related to its work force. During the earnings call the company announced a new wage structure for hourly associates working in Walmart U.S. and Sam’s Club stores. The company believes this new initiative, including training and educational programs, will affect current and future hourly associates in the U.S. Currently the federal minimum wage rate is $9 per hour and Walmart’s initiative will make sure that its employees earn at least $1.75 above that rate. CEO McMillon believes these strategic moves will help foster the feeling of ownership among employees, resulting in a better in-store experience for Walmart customers and in turn better sales and higher shareholder returns.
