Wal-Mart doubles small-store expansion amid weak sales and lowered outlook

Bentonville, Ark. – Wal-Mart Stores Inc. on Thursday doubled its projected growth of its small-store format as the retailer reported a disappointing fourth quarter and issued lower-than-expected fiscal 2015 guidance. Net income for the quarter, which ended Jan. 31, fell 21% to $4.4 billion. Total sales increased 1.4% to $128.8 billion, including a $1.8 billion negative impact related to foreign currency translation. Same-store sales in the United States fell 0.4%.



Just four months after announcing plans to open between 120 and 150 small format stores under the Walmart Neighborhood Market and Walmart Express banners, the retailer upped its growth target to 270 to 300 units. (Wal-Mart maintained its forecast of 115 new supercenters in 2014.)



To accelerate the rollout of small format stores, Walmart U.S. will increase capital expenditures for fiscal 2015 by $600 million to a range of $6.4 billion to $6.9 billion. A forecast provided last October called for spending between $5.8 billion and $6.3 billion on U.S. growth.



“Customers’ needs and expectations are changing,” said Bill Simon, Walmart U.S. president and CEO. “They want to shop when they want and how they want, and we are transforming our business to meet their expectations. By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through ecommerce, we provide our customers with anytime, anywhere access to our brand.”



Walmart debuted its smaller format in the late 90’s. But with its announcement on Thursday, the company is entering an era of accelerated growth for a format viewed as a key element in its omnichannel approach to serving shoppers whose expectations are evolving rapidly.



“Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail,” Simon said. “This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash. Our small store expansion will also strengthen our market share and create greater efficiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience.”



News of the small format expansion helped soften the blow of Wal-Mart’s worst financial performance in recent memory and an inauspicious beginning to Doug McMillon’s tenure as president and CEO of Wal-Mart Stores. McMillon assumed his current responsibilities on February 1 after former president and CEO Mike Duke stepped down.



For the full year, Wal-Mart’s sales increased $1.6 billion to $473.1 billion, including a $5.1 billion negative impact from foreign currency translation. Net income declined 5.7% to $16 billion.



"Comp sales improvement is a key priority, and we’ll focus on being even stronger item and category merchants, delivering value and improving our service level,” McMillon said. “We’ll remain focused on our expense structure, and innovate to improve productivity and aid our ability to deliver every day low prices. Our EDLP approach earns trust with customers and helps us keep our cost structure low “We’ll invest aggressively in e-commerce and increase our small store rollout in the U.S., as we’ve done in several other countries, to deliver value and convenience. The combination of supercenters and smaller formats closer to customers’ homes, along with e-commerce and mobile commerce, will enable us to increase our relevance for the Walmart brand around the world."



In the meantime, Walmart anticipates challenging market conditions in the first quarter and year ahead which could cause profits to fall below prior year levels. Same-store sales at the Walmart’s U.S. stores and Sam’s Club are expected to be flat as the new fiscal year got off to a rocky start with more bad weather.



"We expect economic factors to continue to weigh on our outlook," said Walmart CFO Charles Holley. "Some of the factors affecting our consumers include reductions in government benefits, higher taxes and tighter credit. Further, we have higher group health care costs in the U.S. These concerns, combined with investments in e-commerce, will make it difficult to achieve the goal we have of growing operating income at the same or faster rate than sales.”