Walmart’s Q4 results overshadowed by new employee initiatives

Increased traffic and better than expected same store sales growth at U.S. stores were bright spots in the retailer’s fourth quarter earnings CEO Doug McMillon characterized as good despite a one cent increase in earnings per share.

Consolidated net sales for the fourth quarter were $130.7 billion, an increase of 1.4 percent over last year, but excluding a $2.6 billion impact of the stronger dollar sales increased 3.5% to $133.2 billion. Net income increased 12.1% to $5 billion with earnings per share increasing to $1.53 from $1.34. However, on an adjusted basis to exclude non-recurring factors, Walmart said earnings per share increase a penny to $1.61.

"We had a good fourth quarter to close out our fiscal year, with underlying EPS 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," said Doug McMillon, Wal-Mart Stores, Inc. president and CEO. "Like many other global companies, we faced significant headwinds from currency exchange rate fluctuations, so I'm pleased that we delivered fiscal year revenue of $486 billion. But, we're not satisfied."

The investments in people and e-commerce initiatives will cost the company between 26 cents and 29 cents per share for the full year, according to CFO Charles Holley, who indicated first quarter and full year earnings are likely to be at or below prior year levels. In the first quarter, Walmart forecast earnings per share to range from 95 cents to $1.10 compared to $1.10 in the first quarter last year. Full year earnings forecast to range from $4.70 to $5.05 compared to $4.99

"Given the potential impact of currency headwinds, we expect that our fiscal year 2016 sales growth will be between 1% and 2% percent, versus the 2% to 4% we provided at our October investor conference," said Holley. "Our capital expenditure guidance of $11.6 billion to $12.9 billion, which includes investments for stores and e-commerce, remains unchanged. Our net square footage store growth target, excluding future acquisitions, remains unchanged at 26 to 30 million square feet for this year."

Neither were investors. The company’s shares declined on news that the annual dividend would be increased by a meager 2% to $1.96 a share, foreign exchange headwinds would have a greater than expected impact on 2015 sales and new initiatives related to employee pay and training would pressure expenses.

“We're strengthening investments in our people to engage and inspire them to deliver superior customer experiences,” McMillon said. “We will earn the trust of all Walmart stakeholders by operating great retail businesses, ensuring world-class compliance, and doing good in the world through social and environmental programs in our communities."

Approximately 500,000 full-time and part-time associates at Walmart U.S. stores and Sam's Clubs will receive pay raises in the first half of the current fiscal year, according to the company. As a result, hourly associates will earn at least $1.75 above today's federal minimum wage, or $9 per hour, in April. The following year, by Feb. 1, 2016, current associates will earn at least $10 per hour.

"Today, we announced comprehensive changes to our hiring, training, compensation and scheduling programs, as well as to our store management structure. These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers. We're pursuing a comprehensive approach that is sustainable over the long term," McMillon said. "By realigning our store operational structure, associates can enjoy a closer relationship with their supervisors. In addition, associates will have more control over their schedules. The investment in these initiatives is more than $1 billion for this fiscal year."

Much of that square footage growth will be in the U.S. where Walmart president and CEO Greg Foran said the fourth quarter was the first time since the third quarter of the 2013 fiscal year that traffic was positive.

"Walmart U.S. had increased traffic during the six-week holiday season, with strong sales in seasonal, toys, home and apparel,” Foran said. “We completed almost 1 billion total transactions during the holiday season, including our largest online day ever on Cyber Monday. We are also pleased to deliver positive comp sales for the full year. Neighborhood Markets delivered approximately a 7.7% comp during the quarter.”

The comp growth and additional selling space enabled Walmart U.S. to increase sales 4.1% to $79.6 billion, but the division was unable to leverage expenses as operating profits declined 0.6% to $6.2 billion.

It was a different situation at Sam’s Club where, excluding the impact of the rapid decline in fuel sales seen during the fourth quarter, sales grew more slowly, advancing 2.1% to $14.9 billion, but operating profits increased 19.4% to $456 million.

"Throughout the year, we've seen meaningful acceleration culminating in comp sales, without fuel, of 2% for the 13-week period," said Rosalind Brewer, Sam's Club president and CEO. "Strong holiday execution, combined with our strategic investments in member value, merchandise relevance and the integration of digital and physical boosted our performance."

Sales at Walmart International declined 3.9% to $36.2 billion and operating profits surged 66% to $2 billion due to non-recurring expenses incurred the prior year. Excluding the impact of the rapid strengthening of the U.S. dollar relative to currencies in the international markets where Walmart operates, sales for the division increased 3.6% to $141.4 billion.

"I'm pleased with our International performance, as we've remained committed to our strategic priorities," said David Cheesewright, Walmart International president and CEO. "We've produced solid sales and operating income growth, despite operating in a challenging, competitive retail environment and with significant currency headwinds. Our teams continue to drive innovation in e-commerce by expanding our online presence and offering multiple ways for our customers to shop.”