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ROGERS, Ark. — Walmart used its annual meeting with investors here on October 15 to lower profit expectations and outline a new growth strategy that accelerates expansion of its online business and slows the pace of store openings.
Walmart used its annual meeting with investors here on October 15 to lower profit expectations and outline a new growth strategy that accelerates expansion of its online business and slows the pace of store openings.
Walmart now expects sales to grow 2% to 3% in the fiscal year through January 31, down from the 3% to 5% previously forecast. Headwinds include recent cuts to the federal food stamps program, which pared its customers’ purchasing power, and a stronger dollar, which erodes overseas gains when cash is converted into the U.S. currency.
"Everywhere I travel, I see tough economies and stretched consumers," said David Cheesewright, chief executive officer of Walmart International.
While striking a cautious tone about the near term, management sought to assure investors that the company is making the changes needed to stay current with fast-changing consumer dynamics.
"There is a growing consensus that the future of retail is not just in-store and not just online. The winners in retail will be those that can put them together," said Doug McMillon, the company’s president and CEO. "Frankly, we think we’re doing the harder part. Location matters because convenience matters. We have the stores, the associates and the expertise in the physical world that others will need to build."
Walmart lowered its fiscal 2016 capital budget to reflect reduced growth opportunities from adding Supercenters in the United States. McMillon said Walmart will add 60 to 70 Supercenters next year, compared with 120 this year. Sales at Walmart’s 3,400 Supercenters in the United States declined by 0.3% in the company’s most recent quarter. Walmart’s stock price has declined by 3.3% this year.
Spending on the company’s e-commerce platform will increase by $200 million in the year through January, representing 9% of total capital outlays. For next year, the company is now allocating between $1.2 billion and $1.5 billon toward its digital initiatives. Overall, Walmart is now projecting a capital budget of between $11.6 billion and $12.9 billion for next year.
Executives also said they would slow the pace of openings of Neighborhood Market stores. The company expects to open between 180 and 200 of the smaller-format stores next year, down from the 270 to 300 it expects to open this year.
Mark Miller, a retail analyst at investment bank William Blair & Co., said the slower pace of the Neighborhood Market rollout was unexpected. "We perceive that the cannibalization impact on Supercenters might be larger than previously estimated," Miller wrote in a research note.
Walmart has nearly 400 Neighborhood Market stores. The company introduced the smaller-store format in the late 1990s as an initial effort to shrink the footprint of the standard Supercenter, which typically encompasses 185,000 square feet, carries 1400,000 items and still comprises more than 80% of the company’s store base.
Smaller stores allow Walmart to open outlets in more densely populated neighborhoods and could help it fend off competition from a reengergized dollar store segment following a possible merger of Family Dollar Stores Inc. with either of its suitors — Dollar General Corp. or Dollar Tree Stores Inc.
Greg Foran, the new CEO of Walmart U.S., told investors he’s eager to build on the success of the Neighborhood Markets, which have notched same-store sales growth for 50 consecutive quarters.
McMillon said he is excited to see what Foran can do to strengthen the format. "Greg’s got a strategic mind-set. He builds strong teams. I really like how he’s thinking about the division. It’s been fun to watch him do it, and I look forward to seeing what he’s going to do with it," McMillon said.
"I want us to be judicious about how many we grow next year, because I’d like to give this team a chance to put their fingerprints on it. I think the Neighborhood Market could be even better," McMillon added. "Before we end up with thousands of them, I want to make sure that we’ve got that right."
Rosalind Brewer, president and CEO of the Sam’s division, said the company will continue to improve the layout of its club stores, expand food offerings, especially fresh food, and sustain the effort to brand the stores as health and wellness solutions centers.
"In categories where we’ve introduced newness, we are seeing [positive] change," Brewer said.
The company plans to add between nine and 12 Sam’s Club stores next year, down from 20 this year.
Charles Holley, Walmart’s executive vice president and chief financial officer, says management expects global e-commerce sales to increase by 25% in fiscal 2016. "We are focused on creating an endless aisle and appealing to our customers’ changing needs," he said.
The beefed-up e-commerce platform includes building of the next-generation fulfillment network, which Holley said should allow e-commerce sales growth of between 30% and 40% per year over the next three years.
All of the proposed changes are aimed at serving the customer, McMillon said. "As we have many times before, we’ll exceed our customers’ expectations and, as a result, we’ll win the new era of retail."
