Wal-Mart says heavy e-commerce investments put a crimp on earnings
August 18, 2015 01:56 PM
Wal-Mart Stores Inc. says its heavy investment in e-commerce infrastructure is paying off, with online sales growing by double-digit percentages, but that it hit a rough patch in international online sales and that the spending is weighing on its earnings.
The retail giant, No. 3 in the Internet Retailer 2015 Top 500 Guide, said Tuesday its global online sales, excluding the impact of the strengthening dollar, grew 16% in the second quarter. But investments in e-commerce are estimated to lower full-year earnings per share by between 6 cents and 9 cents, company officials said. With 3.23 billion shares outstanding, that suggests Wal-Mart will spend between $190 million and $295 million on e-commerce this year.
“The highlight was solid growth in the Walmart.com and SamsClub.com U.S. businesses, while international was soft, due to economic challenges in several of our key markets,” chief financial officer Charles Holley said on the company’s earnings call. The international results led Wal-Mart to revise its e-commerce sales growth forecast for 2105 to the mid to high teens from the previous mid-20s range.
Wal-Mart also said its e-commerce investments, meant to vie with Amazon.com and other online retailers, are vital given the competitive environment.
“We’re pleased that the investments we’ve made are helping to improve our business,” CEO Doug McMillon told analysts during the company’s earnings conference call, according to a transcript from Seeking Alpha. "Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving. In this case, our desired changes require investments, which are pressuring earnings this year."
Also in the quarter, the retailer opened two automated online fulfillment centers in the U.S., each bigger than 20 football fields, and two more are coming this quarter, said Holley. The centers will serve customers this holiday season and serve as the cornerstones of Wal-Mart’s fulfillment network, he says.
On the call, Wal-Mart executives discussed its deal, announced last month, to acquire the remaining 49% it did not already own in Yihaodian, a Chinese online grocery retailer that’s been expanding into other categories. Wal-Mart spent $760 million in the quarter to acquire the remaining 49% of Yihaodian, the online retail site in China with 100 million registered users.
“Our primary goal is to continue to accelerate Yihaodian’s core e-commerce business and maintain strong local Chinese expertise,” Neil Ashe, CEO of Wal-Mart Global e-Commerce, told analysts. “Now that we are the sole owners, we will be expanding our leadership team from within the Yihaodian business, from within Wal-Mart and from the e-commerce industry in China. We will also leverage Walmart’s global reach and scale to better benefit Yihaodian, including global sourcing. China is an exciting, dynamic, large and competitive market. We are excited about our long-term opportunity in China.”
For the quarter ended July 31, Wal-Mart reported:
- Net sales of $120.229 billion, relatively flat from $120.125 billion.
- Wal-Mart did not report online sales but said e-commerce sales increased 16% globally when adjusting for the strengthening dollar, which is reducing the dollar value of sales outside the United States. The total value of purchases on Wal-Mart’s e-commerce sites in 11 countries increased 18% on a constant-currency basis. That includes sales by outside merchants selling on Walmart.com and other sites that offer goods from other retailers.
- Net income of $3.475 billion, down 15.1% from $4.093 billion in the same period in 2014
- A decline in operating income in the retailer’s three primary divisions. At Wal-Mart U.S. it was $4.819 billion, down 8.2%; at Wal-Mart International it was $1.277 billion, down 14.2%; and at Sam’s Club it was $428 million, down 13.4%.