Walmart's Q4 income down 7.9% as sales fall, lowers outlook

Walmart (WMT) said Thursday its fourth quarter earnings fell 7.9% due to higher operating expenses and lower sale driven by factors like warmer weather and weaker sales of smartphones and the latest television sets.

The world's largest retailer also lowered its estimate for sales growth in fiscal year 2017, which began in February. It's now expected "to be relatively flat," compared to the previous estimate of 3% to 4% growth. "This change reflects the impact from recently announced store closures globally, as well as the continued strengthening of the U.S. dollar," said CEO Doug McMillon.

Investors reacted by lopping 3% off Walmart stock, down $1.99 to close at $64.12 a share.

One factor that will dampen earnings by 30 cents a share this year, but build employee morale, is the second phase of pay boost for U.S. hourly workers. On Saturday,  Walmart will start paying higher wages, ensuring all those hired before Jan. 1 will make at least $10 an hour. "It's awesome to give a raise to more than 1 million people on the same day," McMillon said.

Walmart, headquartered in Bentonville, Ark., reported net income of $4.57 billion for the three month period ended Jan. 31, compared to $4.97 billion in the year-ago period. McMillon says the chain is making improvements in its stores and trying to simplify the online shopping experience.

Per-share earnings, after adjusting for some items, were $1.49 vs. $1.61 in the same quarter last year. That beat analyst estimates of $1.44, according to S&P Global Market Intelligence.

Total revenue fell 1.4% to $129.7 billion. After adjusting for currency exchange rates in the countries where Walmart operates, total revenue was $134.4 billion, an increase of 2.2%, it said.

"We are seeing momentum in our Walmart U.S. business as we continue to lap positive comps, and our international business is healthy and growing," Walmart CEO Doug McMillon said in a statement. "We are pleased with fundamental trends that are allowing us to improve our stores."

U.S. retail sales have been hampered in the fourth quarter by unseasonably warm weather, as consumers held off buying cold weather gear and apparel. Customers weren't buying as many new smartphones or the latest breed of high-definition televisions. And meat and dairy profit margins sank. But sales from U.S. Walmart stores that have been open for at least a year grew for the sixth consecutive quarter, up 0.6%. Comparable sales for its neighborhood stores, which are smaller than other Walmart locations, increased about 7%.

"The quarter was somewhat of a mixed bag," said Brian Yarbrough, an analyst at brokerage Edward Jones. "There were more negatives than positives and we continue to believe the company is going to have a difficult time driving same-store-sales growth of 2% plus over the longer term. Due to the investment in higher wages and more store labor, we believe the company could need to show same-store-sales growth of 2.5% to 3% to leverage expenses and we are not convinced that can happen over the longer term."

With heightened competition from online retailers, Walmart has been working to improve customer experience in stores and developing ways to better integrate online and in-store shopping, such as curbside pickup of online grocery orders. It also redesigned shelf layout at some stores and is working to move goods faster from suppliers.

Grocery has been a point of emphasis for Walmart as the market has become more competitive. In addition to being the largest retailer, Walmart is also the largest grocer in the U.S. The company is employing more department managers and seeking to ensure that popular fresh produce and organic products are consistently stocked. The online grocery order service is now available in 20 markets in the U.S. and will be expanded, said Neil Ashe, Walmart's CEO of global e-commerce, in a conference call Thursday. "We're going to focus on developing digital relationships with customers," he said.

Walmart's e-commerce sales growth for the quarter slowed to 8% from 10% in the third quarter, after adjusting for currency rate changes. "While we are disappointed by the continued slowdown in e-commerce, we believe the results reiterate the need for continued investment to better position the company in the changing retail landscape," wrote Robert Drbul,an analyst at Nomura, in a note to investors.

Walmart is also closing 269 stores worldwide, including 154 in the U.S, as it shifts focus to supercenter stores and e-commerce. The move cut its fiscal 2016 per-share earnings by 20 cents, it said.

For fiscal year 2016, Walmart's total revenue fell 0.7% to $482.1 billion. Net income sank 10.2% to $14.7 billion.