Wal-Mart Stores CEO Doug McMillon told the investment community Tuesday (Oct. 10) he wouldn’t want to trade places with anyone else because he likes Wal-Mart’s odds to win in the long-term and short-term.
“We have good momentum in the business, we’re executing our strategy and moving with speed to win with the customer, who is more connected than ever and embracing tools that will save them both time and money,” McMillon said during his presentation at the company’s annual investor meeting in Bentonville on Tuesday.
“We’re combining the accessibility of our stores with eCommerce to provide new and exciting ways for customers to shop. I’m proud of the team we have in place, the work we have underway and how we are positioned for success in the future.”
He said the sweet spot for Wal-Mart is its physical stores married with the growing eCommerce business, saying the future of retail is a combination of digital and physical. He said customers who shop online and in stores with Wal-Mart spend twice as much as those who merely shop in physical stores.
“The same person will shop in digital and physical and do it seamlessly without thinking about channel,” McMillon said. “The timing is right to act on cost in a positive way and not harm our momentum. We are striking the right balance for the long- and short-term.”
Wal-Mart said the U.S. retail market, according to Forrester, is projected at $3.5 trillion, with $3.1 trillion of that being physical stores and $0.4 trillion being eCommerce. While the eCommerce piece is small, it’s growing at 14% annually. Grocery is a large chunk of the 2% projected growth at physical stores and expanding online sales. McMillon said that’s much the trajectory seen at Wal-Mart.
McMillon and his management team laid out a plan to grow top line sales by 3% or higher next year, which they plan to execute by growing comp-store sales in lieu of new store growth. Wal-Mart will build fewer than 25 new stores in the U.S. next year — about 15 supercenters and fewer than 10 Neighborhood Market formats.
Walmart U.S. CEO Greg Foran said the U.S. supercenter market is largely built out and the company is now more focused on remodeling 500 stores – including some Neighborhood Markets – built more than 15 years ago to bring them up to today’s standards with grocery pickup. That service will be in 2,000 stores by the end of next year.
He said it’s important for Wal-Mart to keep its assets up to date and 500 remodels is an ambitious undertaking in one year, even for Wal-Mart. Foran said he continues to work with Walmart U.S. eCommerce CEO Marc Lore to look for ways to improve the customer experience and drive costs out of the business.
The latest moves by Lore’s team have included driving traffic to stores and using stores as fulfillment centers for online orders, from online grocery, easy reorder, pickup discounts to testing home delivery by employees and using third party services like Uber and Lyft in certain markets.
ECOMMERCE GAME PLAN
It’s been more than a year since Wal-Mart acquired Jet.com for $3.3 billion and brought Lore on to run the company’s U.S. online division. Lore told the investment community the company expects online sales to grow about 40% next year, down from the 62% growth rate experienced in the first half of this year, given the one-year lap since the Jet.com deal.
Lore said his team has focused on restructuring the organization to run faster and be more customer centric. He said more than 250 category specialists have been hired to merchandise and oversee product sales online and he continues to add about 40 more each month. He said this team manages the top 1 million items that are most ordered online to ensure the retailer has the right mix while offering great values and quality products.
Lore also hinted that the Jet.com smart cart basket savings program will be adopted by Walmart.com in the next two years as the retailer works to continue to take costs out of the supply chain and pass the savings to customers. He also said Wal-Mart is using Jet.com to help woo more premium brands sought by affluent urban populations and the new private label underway at Jet with the help of Wal-Mart is expected to draw in more sales at a higher profit margin.
That said, Lore told the analysts the online business is nowhere near profitable because it still requires investment. He said the division would be profitable as its builds scale and continues to leverage the vast Wal-Mart supply chain.
CFO Brett Biggs said the company is in a strong financial position to be able to invest in eCommerce and still grow earnings per share by 5% next year. Wal-Mart Stores reiterated fiscal year adjusted guidance range between $4.30 and $4.40 per share. The company expects to take a one-time charge of 17 cents a share for the early debt retirement announced last week, offset by a 5-cent per share gain from the sale of Suburbia, an apparel chain in Mexico.
Biggs said the company will hold capital expenditures to $11 billion this year and next, but that does not include any future acquisitions. He said a bulk of the expenditures are going into store remodels and increasing digital experiences in lieu of more new stores. He said the company continues to invest in its enhanced supply chain capabilities and there will be about 255 new stores opened in key markets like Mexico and China.
Biggs said Wal-Mart is not forgetting its investors, and announced a new $20 billion share repurchase program to replace existing authorization. Biggs said Wal-Mart expects to utilize the new plan over the next two years.
Wall Street applauded the retailer for sticking to its strategy and holding firm its guidance claims made two years ago when analysts were told the retailer would invest heavily in eCommerce and supply chain capabilities, and raise wages for store workers. Such moves would delay earnings gains until fiscal 2019, which begins Feb.1, 2018 for the retail giant.
Wal-Mart Stores shares (NYSE: WMT) rallied on Tuesday to close at $84.13, up $3.60. The share price set a 52-week high – $84.88 – during Tuesday’s trading. For the past 52 weeks, the share price has ranged from a low of $65.28 to a high of $84.88, the highest mark set by the company in more than two years.