21st Century Business Herald reporter Hu Huiyin reported that Wal-Mart successfully turned a loss into a profit, and its performance exceeded the expectations of the outside world.
On February 17, local time, the US retail giant Walmart (WMT. US) announced its fiscal fourth quarter and full fiscal year 2022 earnings before U.S. stock marketing. Walmart has shown great resilience, with revenue and profits exceeding analyst estimates. Boosted by the results news, Walmart shares closed up 4.01% at $138.88 on the day.
In the context of the continuous spread of the epidemic in Aumicron and the continued shortage of global supply chains, brick-and-mortar retailers have been hit. In the United States, Walmart's home base, the recent retail situation has reversed. According to data released by the U.S. Department of Commerce, total retail sales rose 3.8% month-on-month in January, the largest increase in 10 months. The report shows that the widespread growth in retail sales highlights the resilience of Americans' demand for goods.
The U.S. retail sector is recovering, but the cost increase caused by inflation remains acute. Even so, Wal-Mart still adheres to the strategy of "low price every day" and successfully achieves a turnaround.
In the context of the ongoing epidemic, the path taken by Wal-Mart may also affect the choices of other retailers to a certain extent.
The performance turnaround exceeded expectations
Problems such as increased supply chain costs and labor shortages remained unresolved in the fourth quarter, which is why Walmart's good results have really surprised the outside world.
According to the fourth quarter financial report, the company's total revenue for the period was $152.87 billion, exceeding market expectations of $151.5 billion, an increase of 0.5% year-on-year, and a net profit of $3.56 billion, compared with a loss of $2.091 billion in the same period last year. From the full year data, in fiscal 2022, Wal-Mart's full-year revenue was $572.754 billion, an increase of 2.4% year-on-year, and net profit was $13.676 billion, an increase of 1.2% year-on-year.
After the earnings report, the stock price increase made Walmart's cumulative decline during the year-to-date narrow to less than 4%, outperforming the S&P 500's decline of about 8% in the same period. It can be seen that Wal-Mart's performance in this quarter has been recognized by the market.
In fact, it is not easy for Walmart to achieve a "turnaround" in the fourth quarter. On the earnings call, CFO Brett Biggs revealed that supply chain costs were $400 million higher than planned for the quarter, and the cost of vacations related to the pandemic was $300 million higher than expected. In addition, Walmart is also under the pressure of inflationary highs. The data showed that inflation in the United States rose 7.5% year-on-year in January, the largest annual increase in 40 years. In addition, according to the Adobe Digital Price Index, in the US online retail sector, grocery prices rose by 5.8% in January, a record high.
Despite soaring costs, Walmart's gross margins and profits have improved.
Describing itself as "an inflation fighter for consumers," Walmart is cautious about raising prices. John Furner, Walmart's head of U.S., said the number of price cuts offered by each store was roughly the same as at the end of the first quarter of 2021.
Ding Liguo, a retail and marketing expert, said in an interview with the 21st Century Business Herald that the strategy of "low prices every day" is extremely attractive to consumers, especially in the case of general price increases in the price of goods on the market. When it comes to the reasons for Wal-Mart's performance improvement, Ding Liguo believes that this is not only because of the proper strategy, but also because of its advantages in supply chain management, "The inflation period especially tests the supply chain management ability of retailers, and Wal-Mart is known for its supply chain capabilities." ”
But at the same time, there are investors who question whether Walmart's suppliers will accept keeping prices low. In this regard, Ding Liguo told reporters that it is precisely in the case of the spread of the epidemic and the chaos of the supply chain that suppliers are more inclined to Walmart with mature supply chain management capabilities, which allows Wal-Mart to highlight its advantages of "low prices every day".
In addition, Zhu Qiucheng, a special researcher of the E-commerce Research Center of the Network Economic Society and CEO of Ningbo New Oriental Industry and Trade Co., Ltd., told the 21st Century Business Herald reporter that Wal-Mart's performance exceeded expectations and was also driven by the addition of third-party sellers. "Walmart's third-party seller markets in the U.S., Mexico and India are growing strongly, with the U.S. market adding 20,000 new sellers last year. The influx of new sellers has directly contributed to the surge in earnings results. ”
How long can the "e-commerce + new business" combination punch be played?
Since the outbreak of the epidemic, online consumption has become a new choice for people, and Wal-Mart's e-commerce business has become hot.
According to the financial report, Wal-Mart's e-commerce sales in the United States rose 1% year-on-year in the fourth quarter, up 70% in two years From the perspective of the whole year, e-commerce sales increased by 11% year-on-year, and the cumulative two-year growth was 90%. Although e-commerce data still maintains growth, from the perspective of growth rate, it has shown a certain slowdown.
Even so, Walmart's focus remains on the U.S. home market. Therefore, Walmart is also trying to improve its supporting services and inject vitality into its core retail business. Previously, Walmart launched goLocal, a last-mile delivery service through funded fintech startups, adding nearly 1,000 new pick-up points. In addition, Walmart has also expanded other delivery services, such as inHome, a direct refrigerator delivery service.
In search of new revenue streams, Walmart is also looking beyond retail. Walmart CEO Doug McMillon said younger businesses such as advertising, its third-party marketplaces and online grocery deliveries are starting to show growth.
Because of this, Zhang Zhouping, director of the B2B and cross-border e-commerce department of the E-commerce Research Center of the Network Economic Society, believes that the slowdown of Wal-Mart's e-commerce business in the United States does not mean that Wal-Mart's e-commerce business has no room for development. In fact, Wal-Mart's e-commerce business in China has grown rapidly, and it has also developed third-party business. In 2021, wal-mart e-commerce platform US opened an official investment channel for Chinese cross-border e-commerce sellers to attract Chinese merchants to settle in. He told the 21st Century Business Herald reporter that in the current situation of a low seller base in the third-party market, Wal-Mart still has a large space for development in e-commerce.
Recently, advertising revenue has also become a new growth point for Walmart. Walmart hopes to use this to cushion the impact of external factors on gross margins.
In January 2021, Walmart launched Walmart Connect to sell digital advertising space to consumer goods companies and other major advertisers. Earlier, Doug McMillon revealed that Walmart's advertising business Walmart Connect has grown to $2.1 billion, and said that its active advertisers have increased by more than 130% year-on-year. Keybanc Capital Markets, a prominent Wall Street investment bank, is also bullish on Walmart's advertising business, and analysts at the investment bank expect Connect to earn more than $3 billion in pre-tax gains over time, helping Walmart offset higher costs. But for now, walmart Connect is still very small. By comparison, rival Amazon generated $31.2 billion in advertising revenue in 2021.
In addition to digital advertising, Walmart is also developing businesses in areas such as financial services and healthcare. Walmart plans to spend 2.5% to 3% of net sales this fiscal year, focusing on supply chain, automation and other aspects. In addition, with the heat of the metaverse, Walmart also submitted an application at the end of last year to officially take a step towards the meta-universe, saying in a statement that it was "constantly exploring how emerging technologies can shape the future shopping experience."
In this regard, Ding Liguo also told reporters that although other new businesses such as advertising business have grown, these are only supplements, and the overall scale will not be too large. Zhu Qiucheng also held a similar view. "The meta-universe is still in the concept, the future imagination space is not particularly large, Wal-Mart's genes are still in traditional retail and its e-commerce business." He told reporters.
Walmart, which successfully bucked the trend in the fourth quarter, can the growth momentum continue? Ding Liguo believes that if Walmart wants to continue to maintain rapid growth, it is difficult. He told reporters: "The significant improvement in this quarter's performance is based on the low base last year. After turning a profit, it is very likely that Wal-Mart will maintain steady growth in the future. ”
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