Walmart described its fourth quarter performance as “solid”, reflecting its momentum in the US, while overseas provided more of a headache.
At group level, the quarter saw a 1.5% fall in sales and a 16.4% decline in operating income, as modest growth in the US was outweighed by a 9.7% slump from Walmart International – the result of unfavourable exchange rates and weak performance in the key Chinese and UK markets, with Asda unveiling its worst ever quarterly like-for-like sales decline of 5.8%.
With a similar picture expected for the current year, and taking into account the recent spate of 269 store closures globally, Walmart has downgraded its estimate for net sales growth for 2016 to “relatively flat” from its previous forecast of 3-4%.
During the quarter, the US retail giant sought to further realign itself with the needs of modern shoppers with a number of measures aimed at improving the in-store and online experience.
This was evidenced by the further roll-out of grocery pick-up facilities, added functionalities to the Walmart mobile app and the launch of Walmart Pay, as well as the recent merger between back-end technology divisions.
In addition, Walmart is pushing on with store renovations, with an improved focus on the fresh category.
To some degree this worked. Like-for-likes in the US were up again for the sixth straight quarter, helped by improved traffic to stores.
However, it is clear that further investment – both in store and online – is required, all of which will have a knock-on impact on profitability for years to come.
Some difficult decisions are therefore likely to be made, including perhaps a more ruthless attitude to underperforming physical assets – hence the recent nail in the coffin for Walmart Express as part of the global store closures announced last month.
Walmart is likely to look even harder at areas where costs can be saved, with further disposals of non-core operations, or even markets, a possibility. Its Suburbia clothing chain in Mexico is already up for sale.
But while Walmart International continues to drag down the group, there is cause for optimism.
It was only a year ago that Walmex in Mexico was suffering comp-store sales declines, dragged down by serious underperformance at Sam’s Club and weak economic conditions.
All of that now seems in the past with Walmex emerging throughout 2015 as a star performer.
The fact that Walmex has rediscovered its mojo provides some optimism that a brighter future awaits some of Walmart’s other ‘challenging’ international markets.