Retail giant Walmart (NYSE:WMT) reported its fiscal 2020 fourth quarter earnings before the market opened Tuesday. The company delivered weaker-than-expected top and bottom-line growth, though the results were in line with management's forecast.
For the just-completed fourth quarter, Walmart reported revenue that grew to $141.7 billion, up 2.1% year over year. The results were lower than analysts' consensus estimates, which called for revenue of $142.5 billion, or growth of about 2.6%. Walmart's operating income declined by 12% to $5.3 billion, but a lower provision for taxes helped the company push more profits to the bottom line. Adjusted earnings per share of $1.38 was down slightly from the $1.41 in the prior-year quarter, and shy of expectations of $1.44.
1. Comp sales continue to climb
For the fourth quarter, comparable store sales in the U.S. -- which includes locations open for at least 12 months -- grew 1.9% year over year, while climbing 6% on a two-year stacked basis. This marks the 21st consecutive quarter of year over year sales gains. For the full year, Walmart delivered comps of 2.8%. Growth was more muted at warehouse outlet Sam's Club, which saw comp sales increase by 0.8%.
For the upcoming fiscal year, Walmart is forecasting slightly slower growth, guiding for comp sales of 2.5% year over year, excluding fuel, while expecting Sam's Club to put up stronger gains of about 3%, excluding fuel and tobacco.
2. E-Commerce growth will begin slowing
Walmart's e-commerce sales grew 35% year over year, which is even more impressive considering that's on top of 43% growth this time last year. E-commerce growth at Sam's Club clocked in at 33%. Last year, Walmart forecast U.S. digital sales of 35% for calendar 2019 -- a benchmark the company exceeded, growing e-commerce sales by 37%.
It appears that the low-hanging fruit has been picked, however, as management is now guiding for e-commerce growth of about 30% year over year for fiscal 2021.
3. A number of challenges
On the conference call, chief financial officer Brett Biggs said while there was increased transaction growth, the results weren't "as good as expected due to lower sales volumes." He also cited some "pressure related to associates scheduling," which the company plans to address.
Several other factors weighed on the quarter, including a shorter holiday season -- which had six fewer shopping days between Thanksgiving and Christmas, making it the shortest holiday buying season since 2013. The toy industry also had difficulty stocking inventory for the important holiday season, as the result of the recently resolved trade war with China.
4. Coronavirus could dent first quarter results
Many companies are scrambling to gauge the effect of the coronavirus outbreak in China, whether it's the result of weakening consumer demand or the influence on manufacturing in the world's most populous country. Walmart believes it's too soon to estimate how much its business will be affected by the outbreak.
"It's too difficult to tell at this early stage exactly how to forecast it," he said about the impact of coronavirus. "We are still operating our stores [in China]. Almost all of them are open ... but operating on reduced hours," with an emphasis on sales of food and consumables, he said. The company is also experiencing difficulties shipping products out of China at this point. "It's too difficult to call right now exactly what will happen in the [first] quarter."
With all the variables, Walmart has decided not to include any impact in its current guidance, so expect an update further into the quarter.
5. Saving millions on vests and shopping bags
During the conference call, Biggs said Walmart expects to save about $60 million annually on its plastic shopping bags, "by changing our buying process and better utilizing our scale," he said.
That's not the only area of lower costs. The company is also realizing cost savings on the trademark vests worn by employees, which will be about 15% less expensive than before.
Walmart announced in mid-2019 that the vests would be getting a makeover, with the rollout of the newly designed vests beginning last year. The company also said the new vests would be more sustainable, being made from recycled plastic bottles.