American retail giant Walmart did not have a merry Christmas as disappointing toy and clothing sales hit the chain’s bottom line, the company announced Tuesday.
The global chain said it has not yet been able to estimate the financial impact of the new coronavirus epidemic in China, where it has a large supply chain.
The outbreak, which has left nearly 1,900 dead and sickened over 72,000 in China, has caused many businesses to shut their doors and cut off many transportation links with the country.
Walmart said it is watching the coronavirus outbreak but ‘has not included any potential financial effects in its assumptions.’
Apple, which depends on China for key components, on Monday announced it would not reach its revenue target for the quarter due to the virus outbreak, as iPhone supply is ‘temporarily constrained.’
Walmart CEO Doug McMillon said it is ‘too difficult to tell at this early stage exactly how to forecast’ the financial impact of the epidemic, but he acknowledged that getting goods out of China ‘is an issue.’
The company, which has 11,500 stores located in 27 countries, including over 430 in China, had responded to the US trade war by re-organizing its supply chain so as not to depend too much on a single country or geographic area.
But the retailer, which is a staple for low-income households, saw sales slow in the fourth quarter ended January 31.
With the consumer instrumental in sustaining US economic growth, the lackluster Walmart results will be a source of concern to analysts and policymakers.
But investors on Wall Street did not seem overly concerned, as shares in the retailer gained 1.5 per cent to close at $119.63 in early afternoon trading.
‘Although Walmart’s growth rate softened in the final quarter, the results are nonetheless respectable and reflect a proposition that remains relevant to consumers,’ Neil Saunders of GlobalData Retail said in an analysis.
But he said the company ‘was not firing on all cylinders during the last part of the year.’
Global revenue increased 2.1 per cent to $141.7 billion in the quarter, falling below expectations of $142.5 billion.
Comparable store sales in the US market, a key indicator for retailers, rose 1.9 per cent, well below the gain analysts had projected and far slower than the 3.2 jump in the prior three months.
‘The fourth quarter was not our best,’ McMillon told analysts on a conference call.
But during an ‘investor day’ event, executives were upbeat about the company’s outlook, stressing a boost from online sales, innovation like home delivery and technology used in stores to fulfill orders.
They also highlighted cost savings plans, including cutting $60 million a year on plastic bags alone.
Revenue generated from the growing online sales component rose 35 per cent, but that was also far slower than the 41 per cent in the third quarter, despite several promotional operations, such as ‘Cyber Monday.’
Walmart, which also operates the Sam’s Club wholesale stores, is fighting to catch up with e-commerce behemoth Amazon.
While the quarter started strong, ‘In the few weeks before Christmas, we experienced some softness in a few general merchandise categories in our US stores,’ Walmart Chief Financial Officer Brett Biggs said in a statement.
‘We understand the factors that affected our results and are developing plans to address them.’
And Biggs told analysts that ‘February has started well.’
The company pointed to softer apparel, toy and game sales and noted ‘a lack of newness in gaming’ as a factor.
Some analysts already had warned that mild winter weather in the US could have negative consequences for retailers, as was the case for Target, the main rival of Walmart.
Even with the disappointing results, Walmart posted a 12.3 per cent gain in net income to $4.1 billion in the quarter, with a 123 per cent surge for the full year to just shy of $15 billion.
Massive social unrest in Chile, where the company has 382 stores, also undermined results in the quarter and ‘negatively affected operating income by approximately $110 million,’ the company said, adding that it ‘continues to monitor the events’ in the South American nation.
Earnings per share of $1.38 compared to the expected $1.43. For the coming year, it expects to achieve $5 to $5.15 a share.
The company also boosted its dividend to investors by four cents to $2.16 a share.
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