Traffic and sales are “pleasing” so far
It seems like forever ago that Walmart stopped reporting monthly sales and providing regular guidance updates, which is why one comment by Walmart CFO Charles Holley stood out above all the others he made this week at the Bank of America Merrill Lynch Consumer & Retail Conference.
After recapping the accomplishments of the U.S. stores division and how that performance translated into financial results, Holley told the audience of investors how they should interpret his remarks and came as close as possible to providing a same-store sales guidance update without sharing an actual number.
“I think your take-away should be for the Walmart U.S. segment that our assortment is back, our price leadership is back, we are operating more efficiently, our comps are positive, and we feel like we are winning our customer traffic,” Holley said. “We believe we can be much better. Now it’s still very early in the quarter, I am not going to give you any numbers, and we still have a lot of work to do, but we are very pleased with our traffic and sales so far for this quarter.”
Walmart’s guidance for first quarter same-store sales envisions a range of flat to up 2%, and the fact that traffic and sales are pleasing to Holley is a positive development for the company and consistent with what other retailers who report results monthly experienced. For example, the 7% comps increase Target reported in February handily exceeded the company’s expectation for a 4% gain. Such discount apparel retailers as Ross and TJX both reported a 9% increase, Costco posted an 8% gain and Nordstrom came in slightly above 10%.
With Holley indicating Walmart is off to a solid start in February, it is conceivable Walmart’s U.S. stores could produce a comps increase at the upper end or in excess of the guidance range. If that were the case it would lend credence to the story of rebuilding momentum that has emerged over the course of the past year. Same-store sales turned positive in the third quarter of last year with a 1.3% increase and in the fourth quarter rose 1.5%. Those figures were achieved against easy prior year comparisons and contained some beneficial effects of food price inflation, but an increase is an increase and Walmart is enjoying some newfound momentum as Holley pointed out.
The biggest threat to that momentum is the wild card of gas prices and the impact further increase will have on consumer spending. Holley acknowledged that gas priced at $4 or $5 gallon is going to be a problem for the Walmart customers, but also indicated that expectations around gas prices tend to reset as people become accustomed to higher prices and budget accordingly.
Acquisitions are lowest priority for international growth
Although Walmart International has completed three acquisitions during the past 12 months, it is actually the least preferred method of growth, according to international division CFO Cathy Smith. Just imagine if acquisitions were the top priority.
Smith’s comments about acquisitions came earlier this week at a Raymond James and Associates investor conference where she appeared with treasurer Jeff Davis and detailed four dimensions of Walmart’s international growth strategy.
The top priority, according to Smith, is to generate same-store sales growth as a means to leverage returns on existing assets followed by new store growth. This year in what promises to be Walmart’s most aggressive organic expansion ever, the company will add between 30 million and 33 million sq. ft. of new selling space on top of the 22 million it added last year, according to Smith. After comps and new stores, the third priority is e-commerce.
“The fourth form of growth we think about our acquisitions,” Smith said. “Many people think of acquisitions as our first form, but it’s not. It’s the last one we choose because it’s our most inefficient use of capital.”
Perhaps this is a new direction going forward or some type of high finance posturing on Walmart’s part to appear disinterested in potential takeover targets, because there’s no denying that acquisitions were historically a preferred method of growth. The international division would be a fraction of the size ($126 billion) it is today if it were not for acquisitions. Since the inception of the international division some 20 years ago, Walmart has relied on acquisitions as a means to enter new markets (Canada, the United Kingdom, Japan, Central America, Chile, South Africa) or quickly build scale in markets that were entered through greenfield development (Brazil, China).
Walmart’s international track record is all about acquisitions so it is easy to see why investors might be confused about the prioritization of growth. In the past 12 months, Walmart acquired a majority ownership stake in Chinese online grocer Yihaodian, acquired 39 former Zellers store leases from Target in Canada, acquired Massmart in South Africa and acquired Netto stores in the United Kingdom to complement Asda stores that had also been acquired through acquisition in 1999.
Walmart now has a presence in enough markets that it could probably grow organically for at least the next decade without the need to enter a new market or expand in an existing market via acquisition. At least that is what it would like the marketplace to believe because it feeds into the company’s ability to be opportunistic in its approach to international dealmaking and avoid paying asset price that have been inflated because the company telegraphed its growth intentions.
Starbucks to open 4,500-sq.-ft. ‘concept’ store in Amsterdam
Seattle — Starbucks will open its largest location in Europe, in the center of Amsterdam, on March 9. The 4,500-sq.-ft. store is located in the vault of the historic Amsterdamsche Bank, a landmark building on Amsterdam’s famous Rembrandt Square.
The space is Starbucks’ first “concept” location in Europe. The company defines its concept stores as unique environments, or “design sandboxes,” created by its designers to explore innovations within the coffeehouse. The new store in Amsterdam features a high level of interaction, and a deep connection to coffee and the local community. It was conceived as a “theatre space “with a 57-ft.-long coffee bar as its stage. Multi-level community areas will serve as stages for local bands, poetry readings and other cultural activities.
“With this store I was inspired not only by the role 17th century Dutch traders played in bringing coffee to the world, but also by the place The Netherlands holds today as a design and creative capital,” said Liz Muller, concept design director. “My vision was to bring the space to life by celebrating local history and tradition while looking to the future by giving it a sense of theatre and discovery.”
The location features a floor-to-ceiling ‘tattooed’ mural celebrating the history of Dutch coffee traders, repurposed Dutch oak throughout the space, antique Delft blue tiles, a ceiling sculpture created from 1,876 hand-cut wooden blocks, and a wall clad in recycled bicycle inner tubes. It was built to LEED standards.
The store will function as a test space for rare and exclusive coffees, diverse coffee brewing methods, and new food concepts, including in-store baking, accompanied by tweets when fresh hot cookies roll out of the oven.