Wal-Mart CFO Brett Biggs tells Wall Street to not underestimate the retail giant

by Kim Souza ([email protected]) 2,059 views 

Wal-Mart Stores is a unique retailer facing a myriad of dynamic challenges, but CFO Brett Biggs told Wall Street analysts to not forget the company’s position of financial strength which is unparalleled in the industry.

He spoke Wednesday (Mar. 8) at the Raymond James Investor Conference held in Orlando, Fla.

Biggs reminded the group that the retailer serves 260 million customers each week around the world and is approaching $500 billion this year in sales revenue, while also generating $31.5 billion in operating cash flow and returning $14.5 billion to shareholders. That alone puts the retailer is a class by itself. Biggs told investors he came to Wal-Mart 17 years ago when it was a $160 billion company and at that time there also were naysayers about future Wal-Mart growth.

“At three times that growth later I can tell you we are not through growing,” Biggs said. “We are a very unique company not just in the retail space but in the corporate space.”

He said this is a transformative time in retail with the customer running the show, influencing how they are served, where and how they choose to shop with full transparency along the way.

“There’s never been a quite a time like this and while you see will many things at Wal-Mart continue to change, there will be always be some constants — saving people money and that also means we will serve their needs and we take care people and act with integrity. Those have been part of our DNA forever,” Biggs said.

STICK TO GAME PLAN
He said a top mission is to make every day easier for customers and there have been many investments in this area as well as operational changes to better align with this mission. From the back room of stores to the front-end registers and across the home office, Biggs said there is more focus on “customer-facing” roles. He said the company is becoming more digital and that will also continue.

Wal-Mart Stores Chief Financial Officer Brett Biggs

Biggs said Wal-Mart totaled $11 billion in increased spending last year, while overall debt was reduced. He said Wal-Mart’s financial strength is something Wall Street often overlooks when discussing other retailers. Biggs said the financial strength gives the retailer the resources to invest heavily for the future. Even with hefty capital spending, aggressive share buybacks and dividends, a $3.1 billion purchase of Jet.com and increased stakes in JD.com in China, Biggs reiterated debt levels for the company decreased last year.

He also spoke about the retailer’s strategy, saying much the work from the past two years is finally paying off with growth coming from multiple channels. He said the 1.8% U.S. comp store number reported in the fourth quarter and the 36% rise in Walmart.com’s U.S. Gross Market Value (sales) are proof that Wal-Mart’s plan is working.

As to omni-channel progress, Biggs said grocery pickup sales are up 27%, and online grocery pickup locations are now in 600 markets. Sam’s Club pickup sales are up 30% and the work with JD.com and New Dada in China are also paying off, though he provided no details.

He encouraged investors to look at Wal-Mart’s efforts to become a more digital enterprise over the past 12 to 18 months. He said Walmart Pay seems like it was launched a long time ago, but it’s only been 15 months since the launch and less than a year since it was rolled out nationally. In the past year Walmart.com has grown inventory to more than 35 million items and global e-commerce sales for the retailer have surpassed $15 billion. In recent months the acquisitions of Jet.com, ShoeBuy and Moosejaw along with an increased stake in JD.com to more recently launching 2-day free delivery for online orders of $35 or more are all part of Wal-Mart’s efforts to become more digital. Not mentioned by Biggs was the recent tweaks made to the mobile app that allows customers to skip the line for prescription refills and money transfers.

Biggs also said physical stores are relevant because they provide consumers with immediacy. He said the improved traffic numbers in Walmart U.S. put up last quarter indicate people do shop stores and that’s great news for the retailer because 90% of the U.S. population lives within 10 minutes of a Walmart.

Biggs said Walmart U.S. is making its stores a more enjoyable place to visit, experimenting with many different ways to increase service and provide convenience. In a new store in Lake Nona, Fla., Biggs said there are only six regular checkout lanes, and the rest are self-service. He said there are touch screens in the store that provide endless aisle experience for shoppers. In the toy department he said a customer can touch a screen and get help choosing a gift by gender and age. He said the screen will show items available online and in store. The customer chooses the one they want. If it’s the online item they can have it delivered to the home or via in-store pickup.

Wal-Mart recently said three years ago half of the capital expenditures of the company were going to building new stores, today that isn’t the case. It’s about making the existing stores better and providing training for the employees to help enhance the customer experience. He said there will likely be other acquisitions that make sense but the bottom line for Wal-Mart will be to grow sales and deliver strong shareholder returns.

PRICES AND EXPENSES
One area Biggs said the company is not content with is the ratio of SG&A (expenses) to sales. He said Wal-Mart believes it can do a better job controlling expenses on everything from direct and indirect selling expenses as well as general and administrative costs. When asked about Wal-Mart’s investment (several billion dollars) in lower prices (or reducing costs to attract customers), Biggs said the retailer is on track to invest more this year and next, providing no details.

However, Walmart U.S. has already begun lowering prices in the Midwest and Southeast against low cost competitor Aldi as well as Kroger and Publix. Walmart U.S.  is running a price-comparison test in at least 1,200 stores that focuses on food prices, health and wellness, and other consumables from laundry detergent to paper towels.

Biggs was asked about how the retailer views Aldi and Lidl and what the company is doing to compete better in the U.S. given the troubles the retailer’s Asda chain has had in the United Kingdom with the two German grocers. Biggs said Wal-Mart is well aware of the two companies and they are strong competitors with well-run business models. He said Wal-Mart will compete on assortment and convenience. He said there is something convenient about only having to make one stop to get everything on your list. Aldi has limited items and offers mostly private label merchandise. He said Wal-Mart is a house of brands sold at values. Biggs said there is no way Wal-Mart would ever under-estimate either of these two competitors.

Analysts have said the margin squeeze is on for Wal-Mart and its competitors. Retailers that provide customers service, values and convenience will likely take market share from others. The online grocery pickup at Walmart U.S. is also an option at Kroger, but it;s a service Aldi does not not provide.

Wal-Mart Stores shares (NYSE: WMT) closed Wednesday at $69.80, up 44 cents on slightly higher volume. Over the past 52-weeks the share price has ranged from a $75.19 high to a $62.72 low.

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