Wal-Mart: 2016 In Review

January 19th, 2017 by Trefis Team
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Wal-Mart (NYSE:WMT) has had a mixed fiscal 2017 (ending January 2017) so far, with the company beating consensus estimates for both revenue and EPS in the first two quarters but missing revenue estimates in the third quarter. In the first nine months of fiscal 2017, the retailer’s total revenue increased 0.7% year-over-year (y-o-y) to $355 billion, driven by a 3% y-o-y growth in the U.S. division. Wal-Mart’s net growth was positively impacted by overall positive comparable sales, partially offset by fluctuations in currency exchange rates and a decline in fuel sales due to lower fuel prices.

Wal-Mart’s operating income declined 5.2% y-o-y in the first three quarters, primarily due to investments in technology and a rise in employee wages. The company’s net income declined marginally y-o-y to $10 billion in the same period, translating into earnings of $3.17 per share. Wal-Mart also generated a total of $12.2 billion of free cash flow in the first nine months of the year, up 80% y-o-y due to disciplined working capital management.wmtfy1

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Wal-Mart’s Comeback In Online Space

The most striking development of 2016 was Wal-Mart’s comeback in the e-commerce space. The company added millions of items to its marketplaces, which helped it resume its online growth in 2016. Wal-Mart also bought Jet.com for $3 billion, which is expected to improve its e-commerce capabilities. In China, Wal-Mart also transferred its Yihaodian e-commerce site to JD.com for a 5% stake in the latter. In addition, the company expanded the number of locations for shoppers to pick up online orders, making the process more convenient. wmtfy4

Online grocery sales could present a big growth opportunity for the company going forward, as groceries contribute more than 50% of the company’s sales. Wal-Mart is expanding its online selection, mainly by inviting more retailers and consumer brands to sell on Walmart.com and its international e-commerce sites. Since the beginning of 2016, Wal-Mart has added 7 million SKUs to its online store and now offers more than 15 million SKUs online, as compared to the 2 million it offered in 2013. [1]

After a lackluster period in 2015, Wal-Mart’s online sales picked up at the beginning of 2016 and reached 20.6% y-o-y in the third quarter, owing to the company’s technological investments.

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Holiday Season

Over the years, there has been a shift in consumer preference from traditional gifts to gifts of travel and entertainment, as well as a growing affinity towards online shopping. This has resulted in a decline of Wal-Mart’s sales growth in the fourth quarter over the last four years.

We expect this trend to follow in the 2016 holiday season as well, since Wal-Mart still relies on store sales, which could be negatively impacted by the ongoing customer shift from store to online shopping. Moreover, overall sales in the general merchandise store category in the U.S. declined 1.4% and 2.8% y-o-y in November and December 2016, respectively. [2] Although Wal-Mart is investing heavily in its e-commerce initiatives, it will likely take some time for the company’s online growth to have a significant impact on overall results. wmths2

Please refer to our complete analysis for Wal-Mart  

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Notes:
  1. Wal-Mart will spend more on e-commerce and online grocery, Internet Retailer, Oct 2016 [↩]
  2. U.S. retail sales report [↩]