Year-Ago Investments Paying Dividends For Sam’s Club

Off and on through the years analysts have said they believe Sam’s Club might perform better if Wal-Mart cut it loose. However, few believe it will happen given that the retail founder’s namesake appears to do fine in Wal-Mart’s shadow.

Sam’s Club, if it stood alone outside of Wal-Mart Stores, would be the eighth largest retailer with annual revenue of $58.02 billion last year. That compared to $11.86 billon at J.C.Penney and $27.69 billion at Macy’s.

Under the direction of CEO Rosalind Brewer, Sam’s Club continues to adapt to the ever-changing demands of its members. She has said the Sam’s Club brand must evolve to drive needed member growth.

Early last year, Brewer and her team outlined what they thought it would take to bridge the generation gap and ultimately drive more sales and services in the next year amid a shifting member base. They raised fees and softened that blow with more coupon savings on big ticket items and expanded their online assortment with a club pick-up option as well.

A year later in the retailer’s annual earnings report, it looks as if Brewer is beginning to reap some benefits from that strategy.

Sam’s Club reported a 2% gain in same-store sales for its fourth quarter results which ended Jan. 31. Comp traffic rose 1.5% and average ticket rose 0.5% from the year-ago period. For the full year, same-store sales were up fractionally at 0.5%, which was down slightly from 0.7% comp reported a year ago.

“Throughout the year, we’ve seen meaningful acceleration culminating in comp sales,” Brewer said during the recent earnings call. “Strong holiday execution, combined with our strategic investments in member value, merchandise relevance and the integration of digital and physical boosted our performance.”

Net sales for Sam’s Club last year rose 2.1% to $51.6 billion, excluding fuel. Gross sales that included fuel rose 1.5% to $58.020 billion compared to a year ago. Total operating income rose 7.2% from a year ago.

Looking ahead, Sam’s Club expects comp sales for the current quarter ending May 1 to rise between 1% and 2% from the 0.5% level of a year ago.

HOLIDAY MOMENTUM
Sam’s Club reported improved holiday sales in the fourth quarter which ended Jan. 31. Net sales grew 3.7% and Sam’s Club delivered comp sales of 2% driven by traffic growth of 1.5% and ticket of 0.5%, Brewer said.

Although gas prices were down roughly 25% over the fourth quarter, gallons sold increased 8% year-over-year and fourth quarter operating income included a $41 million increase in fuel profit. Net sales including fuel increased 1.3% to approximately $14.87 billion, modestly below analysts projects of $14.93 billion. Without fuel, net sales rose 3.7% to $13.64 billion.

“The Savings member continues to drive traffic. We have lapped last year’s SNAP reductions and benefitted from favorable weather this quarter. Retail inflation across the club has moderated slightly since the previous quarter,” Brewer said.

She explained gross operating margins were down slightly in the quarter pressured by the retailer’s Plus Cash Rewards program and merchandise mix. But Brewer said expenses were also lower in part because of staff reductions that took place earlier in the year.

Brewer said her team also reduced total inventory by 3.5% last year while adding 16 new clubs, which should help gross operating margins going forward.

One of the hottest categories at Sam’s Club is the fresh food business with comp sales growing in low positive digits for the recent quarter. She said produce was challenged from weather supply issues, but dry grocery, consumables and beverage also performed low single digit gains from a year ago as did home and apparel.

Health and Wellness category sales rose in the positive mid-single-digits over a year ago. Brewer said pharmacy comps as well as over-the-counter sales improved. The technology, office and entertainment categories continue to see deflationary pricing which took comp sales down roughly 5% in the quarter.

“We need to make larger, faster strides. This year, our merchants are rebalancing the portfolio, which involves reallocating resources towards higher growth, higher excitement categories,” Brewer said.

E-COMMERCE, MEMBERSHIP GROWTH
Brewer remains excited about SamsClub.com saying that it was “integral in supporting our in-club holiday events.”

“Dot-com delivered double-digit comps in both direct-to-home and Club Pickup, contributing approximately 40 basis points (0.40) to the segment comp,” Brewer said.

Sam’s Club rebranded Click ‘n’ Pull to Club Pickup and attempted to improve the service appeal to Savings and Business members. Brewer said the improvements made to Sam’s mobile and desktop platforms helped to boost conversion rates.

Membership income is the bread and butter for the club format and Brewer reported a 10.3% gain for the year, which includes the 16 new clubs that came online during the year. Without the $24 million from the new real estate, membership income rose 2% driving an annual operating income of $1.9 billion.

“I am optimistic about our growth opportunities in both the digital and the physical and that’s why we plan to open 9 to 12 new and relocated clubs, and remodel between 55 and 60 clubs this year, while simultaneously investing in innovation at SamsClub.com,” Brewer said.

In step with its parent, Sam’s Club said this year its starting pay will be raised to $9.50 per hour, noting that the business model differs from Wal-Mart Stores which is raising the starting wage to $10 per hour. Brewer said the move will ensure all Sam’s Club hourly associates are paid above the federal minimum wage.