The world’s top retailer Walmart (WMT, Financial) came out with disappointing first-quarter 2015 numbers. While some analysts were taken by surprise, others had expected something close to the released numbers. Strong domestic currency was part of the reason for Walmart’s underperformance. This clubbed with a half-finished turnaround plan appeared to have disappointed investors, which was visible in the retailer’s stock price that plunged 3% after the earnings news.
The same-store sales in U.S. surged a meager 1.1%, and earnings per share fell to $1.03 as compared with the last year same period. Let’s take a closer look at what’s happening by looking beyond the numbers.
Reasons for its poor figures
Walmart is a colossal retailer with an annual turnaround of around $500 billion. The company’s quarterly revenue came in at $115 billion. The slower-than-expected growth could be worrying investors. Not only this, the company is not expected to see much improvement any time soon, which could be causing greater concern. The company said currency headwinds, investments in ecommerce growth and hikes in wages pressurized its profits in the last quarter.
Walmart had expected falling oil prices would spur some demand among consumers on account of the savings. In contrast, buyers were observed to use the saving for the repayment of their obligation to bring down their debts instead of spending on consumables. Other retailers like Target (TGT, Financial), Kohl’s (KSS, Financial) and Macy’s (M, Financial) also experienced similar customer response. So Walmart didn’t really benefit from the oil price dip.
Also, as per a Yahoo! (YHOO, Financial) Finance report, customers are spending less on electronic items and smartphones together with reducing purchases from departmental stores. They are spending more on air travel, hotels, restaurants, jewelry and furniture. Besides, Americans are gradually shifting to online purchases and drifting away from traditional purchases in general departmental stores. They are not ready to spend much and often look for close-by convenience stores.
It’s not only Walmart that’s struggling. Other retailers are also in the same boat. Analysts expected Macy’s, Kohl’s and JCPenney (JCP, Financial) to put up a good show but ultimately ended up with sales that missed analysts’ expectations. Retail sales surged a meager 1.9% as compared with last year.
Positive takeaways
Walmart, which has been primarily running a chain of discount departmental stores, is investing in ecommerce. The company is also working on improving its customer service by investing in staff. Walmart’s efforts have started showing results. At the latest earnings call, the company said, “Our customer service scores have steadily increased this quarter with all geographic areas and formats showing positive results.”
Walmart’s two most important regions of growth are ecommerce and its Neighborhood Market locations whose growth have been right up to the mark in the first quarter of the year. Ecommerce witnessed solid global growth by 17%.
Again, the comparable-store sales in smaller Neighborhood Markets spiked 7.9% in the previous quarter. Walmart Neighborhood Market is vital as it contributes largely to the overall growth store.
The quarter may not have been attractive, but there are indeed some positive developments for Walmart. There are a few aspects where the company needs to improve to bring things back on track. Its effort to improve its customer service and investments in growth avenues should bear results in the future. It’s time to wait and watch how Walmart plans its turnaround and sets strategy to bring things in its favor.
