Inside This Issue - News
Walmart’s U.S. blues
March 7th, 2011
BENTONVILLE, Ark. – Walmart reported a 27% increase in net income for the fourth quarter of fiscal 2011, but the strong bottom-line performance was overshadowed by a decline in domestic same-store sales that exceeded management’s most recent forecast.
Consolidated fourth quarter net income attributable to Walmart rose 27.3% to $6.06 billion on a 2.5% increase in sales to $115.6 billion. For the year, net income grew 14.1% to $16.39 billion, as sales improved 3.4% to $418.95 billion.
But continued underperformance at the company’s flagship Walmart U.S. division took the luster off an otherwise solid showing that saw the International Division continue to drive both sales and profit growth. Sam’s Club also turned in an impressive outing that included a 57% leap in operating income during the fourth quarter and a 13% increase for the year.
For that matter, the top-line disappointment obscured respectable gains in operating profit at the flagship division, gains that were achieved through effective cost controls.
Comparable-store sales for the final quarter at Walmart U.S. declined 1.8%, worse than management’s November predicted range of a 1% decrease to a 2% increase. Full-year comp-store sales, meanwhile, fell 1.6%.
The results contrasted sharply with those of rival Target Corp., which posted a 2.4% increase in comp-store sales for the quarter and 2.1% for the year. Kmart, meanwhile, achieved a 2.5% fourth quarter comp-store increase while managing a 0.7% improvement for the full year.
It was the seventh consecutive quarter — and the second consecutive year — of comp-store sales declines for Walmart U.S., which still accounts for 62% of Walmart’s total sales. "Some of the pricing and merchandising issues in Walmart U.S. ran deeper than we initially expected, and they require a response that will take time to see results," said president and chief executive officer Mike Duke during a prerecorded conference call.
While customer traffic was down for both the quarter and the full year, the average transaction in Walmart U.S. stores increased slightly in both periods. The only major merchandise category to achieve positive comp-store sales in the fourth quarter was food and health and wellness.
Simon announced a four-point plan intended to improve the division’s performance:
• Reestablish everyday low price leadership, supported with targeted marketing both in-store and across a variety of other media.
• Offer the broadest possible merchandise assortment, at the lowest price in the market.
• Improve the efficiency and return on investment of store remodels. "We will change our remodeling program to right-size merchandise categories and eliminate remodel disruptions," Simon told analysts. "We will continue to drive efficiencies through our remodeling program to reduce capital costs and expenses."
• Expand access for Walmart’s customer through expanded multichannel initiatives.
Simon expressed confidence that the division can improve its top-line performance. In February the retailer began restoring the traditional action alley to its stores. Space and assortment changes to improve merchandise presentation, particularly in apparel, sporting goods, toys and hard lines, are also under way.
In addition, Walmart will begin launching small-format stores. According to Simon, the company will debut a new banner and format, Walmart Express, in the second quarter. The format has been designed for rollout in both rural and urban locations, but executives revealed no further details.
The Chicago Tribune reports that Walmart has filed a permit to open a Neighborhood Market measuring 26,491 square feet on the ground floor of the Presidential Towers apartment complex in Chicago’s West Loop area. The store will be Walmart’s first smaller-format store in Chicago, and it will be located about half a mile from a new small-format Target outlet, dubbed City Target, that is scheduled to open in 2012.