Wal-Mart’s McMillon talks succession, wages, ‘influence with suppliers’

Wal-Mart CEO Doug McMillon told the media Friday (June 5) that shareholder week is his favorite week of the year though by the end of the Saturday morning meeting everyone is ready for a long nap. 

McMillon spent a few minutes fielding questions from media following the annual shareholders meeting in Fayetteville. When asked about the change in board leadership announced Friday, McMillon said he looks forever to working with Greg Penner, the new chairman in part because of his strong leadership and knowledge in e-commerce on a global scale. Penner, 45, was named vice chairman and Walton’s chosen successor at the 2014 shareholder meeting. He is only the third board chairman in the company's history.

He reminded the audience that outgoing chairman Rob Walton will remain on the board and he will “most assuredly will be watching very closely.” He was also asked if it was corporate policy to keep a family member as chairman and how much time went into making this board decision. He asked the media not to lose sight of the fact the board also has a very strong team of independent directors.

Wal-Mart Stores is one of eight family owned Fortune 500 companies and is deemed a controlled company given the founder’s family owns at least 50% of the outstanding shares. The company has been criticized for the influence the Walton Family has on board selections.

“We have a great board, they hold us accountable, they are supportive as appropriate,” McMillon said.

Given the succession plan was announced last year it’s been at least that long that the board has been in talks about succession, he said, adding that he believes board members have done a great job of pushing management to be prepared for the future. He said changes in management and operations have come about because customers are demanding more, and not a result of slowed growth.

“Our customers are changing more rapidly today and with today’s technology and what we anticipate coming we can imagine opportunities to serve customers more effectively. We have history all the way back to Sam Walton of changing, mixing things up and reinventing store formats. Today it’s not just store formats, it's not just the physical aspects of our business but it’s also the digital aspects and how they come together,” McMillon said.

CHASING THE CUSTOMER
The mission he said is saving people money and time and the company is positioning itself for the customer of the future.

The customer of the present has been tough, also.

Improved comp store sales and a 17% increase in global e-commerce sales were about the only highlights of the May 19 first quarter earnings report from Wal-Mart Stores. First fiscal quarter net income and total revenue were down was down 6.7% and 0.1%, respectively, from the same quarter of 2014.

Earnings per share for the fiscal first quarter ended April 30 was $1.03, down from $1.11 in the first quarter of 2014 and one cent below the consensus $1.04 per share among the 26 analysts who follow the retailer’s financial performance. The company said currency exchange rate issues reduced earnings by 3 cents per share.

Total revenue in the quarter was $114.826 billion, down from $114.96 billion in the 2014 first quarter and below the consensus estimate of $116.32 billion.

SUPERCENTER SUPPORT
Reporters wanted to hear from McMillon why lower gasoline prices were not helping boost retail sales as analysts had originally predicted. McMillon said savings from lower gasoline prices are being absorbed somewhat by food inflation. He said others are paying down debt and saving more. He said in the short-term if fuel prices stay where they are customers may become more comfortable with the overall environment.

As to store performance, McMillon made in clear that Wal-Mart is not planning to close underperforming supercenters.

“We are excited about the supecenter fleet that we have and we will still build some, but previously noted that we are moderating our supercenter growth and building a couple of hundred neighborhood markets. … Customers will always want to have a stock-up trip of some kind because it saves time. Our supercenters over time have been reduced in size from 220,000 square feet to about 150,000 square feet today. We are excited about having a box in that size range that positions us for the future including the capabilities we are building in digital,” McMillon said.

He said raising wages is good for the economy and he supports wage increases happening now in retail. McMillon said Wal-Mart is committed to raising wages in the future as needed to attract and retain talent.

Lastly, suppliers and customers can expect the Everyday Low Price strategy to be a constant under the leadership of McMillon. He said it supports loyalty and trust and if Wal-Mart can execute it right, it’s a winning strategy.  

“I say if, because it requires some investment and it requires some scale because we need to have enough influence with suppliers to get them to price the goods on a net-invoice cost basis. If the suppliers are volatile in their approach, playing games with customers it’s hard for us to manage that as we interact with customers. I believe over time Everyday Low Price works around the world when it’s executed properly,” McMillon said.