Oct 15, 2014 7:43 PM
Wal-Mart cuts sales outlook amid tough economy
The Associated Press
NEW YORK (AP) Wal-Mart Stores Inc. cut its revenue outlook for its current fiscal year as it announced it is scaling back its expansion plans for its supercenters next year and stepping up investments in its online operations.
The world's largest retailer, blaming an overall tough economy, now expects annual sales to be up 2 to 3 percent for its fiscal year ending in January. That is down from its earlier guidance of sales growth at the low end of a 3 to 5 percent range.
Wal-Mart's diminished outlook increases concern about prospects for the critical holiday shopping season that kicks off late next month. It also comes on the same day that the government reported that September retail sales retreated from the prior month.
Wal-Mart is a barometer of consumer spending and its challenges reflect the continued struggles of its low-income shoppers who still feel squeezed by stagnant wages and reduced government food stamp benefits. It's also being tripped up by its own merchandising mistakes. As a result, Wal-Mart's namesake business, which accounts for 60 percent of its total business, hasn't reported growth in a key sales measure in six straight quarters.
Wal-Mart's shift away from its supercenters toward small stores and online also underscores how it must respond aggressively to a new era of shopping: Consumers are increasingly moving to mobile devices, while at the same time they're seeking the convenience of small stores.
It marks a big shift for Wal-Mart, which rose to power by rapidly expanding its supercenters that sell everything from pharmacy items to apples and jeans. The company said that it will add between 26 million and 30 million net retail square feet worldwide next year, a decrease from this year's expected 32 million to 34 million square feet. The company said it now plans to open 60 to 70 supercenter stores during its next fiscal year, down from the planned 120 this year. As a result, it's reducing its estimated range for capital spending next year to $11.6 billion to $12.9 billion, down from the expected $12.5 billion to $13 billion.
It's also conducting a major review of its U.S. Wal-Mart business and will update investors on its plans early next year, executives said.
"We'll give customers the choices they want and need by integrating digital and physical retail," said Doug McMillon, Wal-Mart's CEO and president, who took over the reins from Mike Duke in February. "We won't be just a store on the street. We'll support our customers' lives with them in the driver's seat, to save them money and time."
McMillon said that while Wal-Mart is facing some economic headwinds, he also noted there's a lot of room to improve store operations.
In the short term, that means keeping items that shoppers want in stock and speeding up checkout lines. Wal-Mart said it will open more cash registers than ever this holiday shopping season. It also needs to get better with its prices.
"There's no excuse for us not to be doing better," McMillon said.
In the long term, it's dissecting every part of its business. One big change: Wal-Mart has ended its program of tethering its small stores to its supercenters. The purpose was to use the big stores as distribution hubs to supply goods for the smaller locations. But Wal-Mart said the model wasn't sustainable.
"I really believe our future is bright," McMillon said. "There are so many ideas percolating around."
Broken down, Wal-Mart plans to spend $10.4 billion to $11.4 billion in capital expenditures on its physical stores during the next fiscal year. That's down from $11.6 billion to $12 billion planned for the current year. But for its e-commerce initiatives, it plans to increase spending to $1.2 billion to $1.5 billion next year, up from a planned $1 billion this year. That investment includes new technology and building new distribution centers.
The company, which is based Bentonville, Arkansas, has been testing new services like same-day delivery in several markets. It expects online sales to increase 25 percent next year, and then forecasts growth to average 30 to 40 percent in the next few years.
Greg Foran, CEO of Wal-Mart's U.S. division, told investors that supercenters, which average about 180,000 square feet, are still important. But Wal-Mart needs to think about how they should look.
As for its smaller stores, the company also plans to add 180 to 200 Neighborhood Markets next year, from 170 stores scheduled for this year. It's reducing growth of its smaller Wal-Mart Express stores. It plans to open 20 stores next year, down from the expected 70 this year. Wal-Mart Express stores are about 12,000 square feet, while the Neighborhood Markets average about 40,000 square feet.
It's also rebranding Wal-Mart Express stores to Neighborhood Markets while reducing its offerings in seldom-purchased items such as shower curtains and stocking more items that shoppers want every day such as diapers.
The company plans to add 9 to 12 Sam's Clubs in its next fiscal year, down from the planned 20 new clubs for this fiscal year.
Wal-Mart's share fell $2.78, or 3.6 percent, to close at $75.20 on Wednesday.
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