Walmart shopping carts in Chicago, Illinois, the US, November 27 2019. Picture: REUTERS/KAMIL KRZACZYNSKI
Walmart shopping carts in Chicago, Illinois, the US, November 27 2019. Picture: REUTERS/KAMIL KRZACZYNSKI

New York — Walmart fell on Thursday after forecasting a slowdown in sales and profit for the year, plus billions of additional spending on automation,  other technology and workers’ salaries.

The retailer said earnings per share will decline slightly in the fiscal year that just started, though will be flat or slightly up when excluding divestitures. Though US comparable sales will stay positive in 2021, they’ll rise in the low-single-digits, below the recent breakneck rate but on pace with estimates.

Walmart shares fell 5.6% in New York. Over the past 12 months, the shares have outpaced the S&P 500 but have trailed Target.

After an unprecedented year marked by shortages of staples such as toilet paper, surging web traffic and constant shifts in demand from quarantined consumers, Walmart expects a return to more normal business patterns in 2021.

But it won’t be business as usual as the retailer is pushing into new areas such as advertising and web marketplaces, looking to capitalise on the connections it already has with shoppers. Those moves, along with the wage increase, will cost money though, and there’s no guarantee they will all pan out.

Wage hikes

Walmart pledged on Thursday to raise wages to an average of more than $15 per hour, up from a current average of more than $14 per hour. About 425,000 employees out of roughly 1.5-million total in US are slated for increases, mostly in roles that support its digital and stocking operations, US CEO John Furner said in a separate memo to workers on Thursday.

CFO  Brett Biggs said in an interview the wage hike is “focused on roles that will help us fulfil our strategy about online pickup, delivery and e-commerce”. He also said he wants to create more of a “ladder of opportunity” for the retailer’s sprawling workforce, some of whom joined the retailer after losing jobs in occupations hit by the pandemic.

The move comes amid calls from President Joe Biden to gradually increase the federal minimum wage to $15 per hour as a means to lift hundreds of thousands of Americans out of poverty. CEO Doug McMillon recently said Walmart opposes a universal wage of $15 as increases should reflect regional norms, and this move — an average starting rate, not a minimum one — means some workers will still be below that $15 threshold. New starting rates are moving to between $13 and $19 per hour.

Investors have reacted negatively in the past when Walmart has boosted wages. In 2015, shares plummeted when McMillon, then fresh in the job, decided to raise starting wages to at least $10 an hour.

Tech spending

In addition to spending more on salaries, Walmart says it will invest about $14bn in 2021 on its supply chain and automation, up from the $10.3bn it spent on capital expenditures in the year that just ended. Those kind of investments will help it expand in retail’s growth areas such as micro-fulfilment of groceries and better digital experiences for customers. That’s increasingly important as Walmart’s US e-commerce sales grew 79% in the year.

“We need more space for fulfilment centres, but also for some of the innovative things we’ve seen in the supply chain,” Biggs said. “That includes pallets that are aisle-ready and making grocery-picking more efficient in the back room. A lot of dollars are going towards that.”

When asked by an analyst whether the investments in wages and the supply chain are totally new, or were pulled forward from a more long-term plan, McMillon said they were planning to do all of this over time but the pandemic forced them to act faster. He also cited the conflicting demands on Walmart’s resources, as it has to juggle what it doles out in wages vs money for supply-chain improvements.

Solid holiday

Walmart said adjusted operating income in constant currency decreased 3.2% in the latest quarter, primarily due to Covid-19 expenses and the company’s decision to repay property tax relief in the UK.

At the same time, sales surged. Same-store sales increased 8.6% for US Walmart stores in the holiday period ended January 31, well above the 5.7% average estimate compiled by Consensus Metrix. Biggs said the holiday performance was “good”, with gift-buying “solid.”

Investors on Thursday's call are asking a lot of questions about Walmart+, including number of subscribers, but management wouldn’t release the figure. McMillon said he’s more concerned with delivering a great experience for existing members vs gathering new members. “We don’t want to get ahead of ourselves,” McMillon said.

Analysts estimate that the service, which launched in September as a rival to Amazon Prime, has as many as 9-million members.

Bloomberg

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