Updated to include additional comments from Walmart's earnings call.
Despite reporting slightly better-than-expected earnings, Walmart's (WMT) - Get Report top dog realizes more work must be done to revive a sagging stock price and consistently produce better results for the world's biggest retailer.
"We still have plenty of work to do," said Walmart CEO Doug McMillon Tuesday on a taped webcast detailing third quarter results, where profits of $0.99 a share narrowly beat forecasts for $0.98 a share. According to McMillon, certain areas of Walmart's business still "have to perform better." Walmart's stock is down about 33% for the year.
The cautious views of McMillon, which come weeks after Walmart slashed its sales guidance for 2015 and issued a disappointing outlook for 2016, causing its stock to plummet, could be seen as a reflection of Walmart's mixed third-quarter performance.
Same-store sales at Walmart U.S. rose 1.5% in the quarter, coming right in the middle of the company's guidance for a 1% to 2% increase, supported by a 1.7% increase in customer traffic. Grocery, a business that has struggled for Walmart this year due to problems keeping inventory fresh, delivered a low single digit same-store sales gain. Sales in other categories such as health and wellness and home goods rose by mid-single digit percentages.
But even though sales at Walmart U.S. rose, operating profits at the division plunged 8.6% year over year. The decline stems from Walmart's massive $1 billion investment this year in things such as higher wages for associates and bringing back department managers. Walmart is also investing heavily in its online business and in revamping its stores, so Walmart will need faster sales growth in the U.S. in light of its higher expense base, something that McMillon may fully understand.
And when it comes to its online business, Walmart may have some work to do to get people to notice its wider selection and faster checkout speed. "E-commerce traffic was softer than we would have liked," acknowledged Walmart U.S. CEO Greg Foran on the call.
According to Wal-Mart, online sales contributed about 15 basis points to its U.S. division's same-store sales growth in the quarter, down from a 20 basis points contribution a year earlier. The result is a particular disappointment for Walmart as it invests aggressively this year to add online offerings and improve its website's overall functionality.
Walmart plans to invest about $900 million on its e-commerce initiatives this year, up from $700 million in 2014.
Elsewhere, warehouse club Sam's Club continued to be a mixed bag as well. The chain produced a 0.4% same-store sales increase excluding the impact of volatile fuel prices, which is a truer measure of performance. The result was toward the low end of Walmart's guidance for flat to up 2% growth there. Said McMillon on Sam's Club, "we can do better with our overall results." The division's profits, however, did increase 8.4% from the prior year excluding fuel.
Walmart's international efforts also could use some help. Net sales and profits internationally fell 11.4% and 6.4%, respectively, in part due to a $5 billion impact from the stronger U.S. dollar. Excluding the dollar's influence, sales and profits rose 3.2% and 8.5%, respectively, year over year. Walmart pointed to declining same-store sales in key markets such as the U.K., Brazil and China as coming about because of "competitive challenges," and specifically in the case of China, due to "slower consumption growth."
Walmart revised its full year earnings guidance to $4.50 to $4.65 a share, compared to $4.40 to $4.70 a share previously. For the holiday quarter, Walmart sees earnings in a range of $1.40 to $1.55 a share, compared to Wall Street estimates for $1.43 a share.
Shares of Walmart rose about 2% in early trading.