Continued top-line weakness at Walmart U.S. and surprising sales deceleration at Sam’s Club, combined with a handful of special charges related to the International Division have prompted Walmart management to lower its sights for fourth quarter and full-year earnings and comparable-store sales.


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Walmart lowers outlook; Amazon warns on Q1

February 3rd, 2014

NEW YORK – Continued top-line weakness at Walmart U.S. and surprising sales deceleration at Sam’s Club, combined with a handful of special charges related to the International Division have prompted Walmart management to lower its sights for fourth quarter and full-year earnings and comparable-store sales.

The day before Walmart announced its revised guidance, Seattle-based Amazon.com reported disappointing fourth quarter earnings and projected a possible operating loss in the first quarter of its 2014 fiscal year.

Walmart, which will issue its fiscal 2014 financial results on February 20, had previously forecast GAAP, or reported, fourth quarter earnings from continuing operations of $1.50 to $1.60 per diluted share, with adjusted, or underlying earnings projected at $1.60 to $1.70 per share. Full-year earnings were estimated at $5.01 to $5.11 per share, with adjusted earnings between $5.11 and $5.21 per diluted share.

"We now anticipate that our underlying EPS for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70," said chief financial officer Charles Holley in a statement. "For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to $5.21."

Walmart had notified investors in November that its fourth quarter earnings would be reduced by 10 cents per share because of charges related to 50 store closures in Brazil and China (6 cents per share) and to the termination of agreements with its India joint venture partner (4 cents per share). The company has bumped up the impact of the India transaction by a penny, but also revealed additional special items that will shave another 15 cents per share from earnings.

Those consisted of a 6-cents-per-share hit from non-income tax contingencies in Brazil, a charge of 5 cents per share for employment claim contingencies, also in Brazil, 3 cents per share for store lease expense charges in China, and a penny related to the previously announced staff cuts at Sam’s Club as well as the closure of one club.

While the International Division accounted for most of the earnings revisions, trends in its domestic businesses caused Walmart to lower slightly the comparable-store sales guidance issued in November.

"Walmart U.S. guidance on November 14 was for comp sales to be relatively flat, and Sam’s expected comps, without fuel, to be between flat and 2%," Holley said. "Despite a holiday season that delivered positive comps, two factors contributed to lower comp-sales performance for Walmart U.S. First, the sales impact from the reduction in SNAP (the U.S. government Supplemental Nutrition Assistance Program) benefits that went into effect November 1 is greater than we expected. And, second, eight named winter storms resulted in store closures that impacted traffic throughout the quarter."

Holley added that weather also negatively impacted sales at Sam’s Club.

In a research note, William Blair & Co. analyst Mark Miller noted that Walmart does not appear to have benefited significantly from the loss of customer traffic suffered by Target Corp. in the wake of its data breach, and found the sales weakness at Sam’s Club surprising.

Walmart was not the only major retailer with negative surprises for Wall Street. Although fourth quarter sales rose 20% to $25.59 billion and net income soared 146% to $239 million, earnings per share of 51 cents per share was not close to the average estimate of 66 cents per share among analysts surveyed by Thomson Reuters.

Moreover, Amazon projected first quarter operating results ranging from a $200 million loss to a $200 million profit. The company explained that the guidance includes about $350 million for stock-based compensation and amortization of intangible assets. Sales for the quarter are expected to increase between 13% and 24% to a range of $18.2 billion to $19.9 billion.

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