Via Financial Times

The world’s biggest retailer Walmart has reported a drop in profits and a sharp slowdown in US revenue growth after sales of toys, computer games and clothing were unexpectedly weak in the run-up to Christmas.

Like-for-like sales at Walmart US rose 1.9 per cent year on year in the three months to the end of January, a slowdown from a 3.2 per cent rise the previous quarter and 4.2 per cent a year ago. Net sales across the group rose 2.1 per cent to $140.6bn.

Executives cited the company’s own mis-steps rather than a broader weakness in the economy. Doug McMillon, chief executive, said the company’s clothing line-up had been too “red and green”, or Christmas-orientated, over the festive season.

Yet the sluggish performance by Walmart, long considered a bellwether for financial trends among low- and middle-income households, was being scrutinised for signs of weakness in US consumer spending, whose resilience has helped underpin the global economy.

The earnings report is the latest in a series of disappointing updates from the sector. Other retailers that have reported lacklustre holiday sales include Target, Walmart’s big box rival, which last month cut its quarterly sales outlook after its festive financial performance was weaker than expected.

Walmart’s slower-than-forecast holiday sales raised new concerns about the state of US retail, given that the company has typically coped better than most of its peers with the competitive onslaught from Amazon and turmoil in the industry.

Adjusted operating income in the fourth quarter dipped 3.7 per cent from a year ago to $5.8bn, Walmart said.

Analysts had anticipated a slowdown, given the weakness elsewhere in the sector and other factors including an especially strong comparable period last year, when toy sales were boosted by the closure of Toys R Us. Wall Street shrugged off the disappointment, sending Walmart shares up 0.6 per cent in early trading to give the New York-listed group a market capitalisation of $338bn.

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Brett Biggs, chief financial officer, said that while the fourth quarter had “started and ended strong”, Walmart “experienced some softness” in important categories during some of busiest shopping weeks of the year.

Neil Saunders, managing director of GlobalData Retail, said Walmart’s clothing ranges, especially in its stores, had been “uninspiring, difficult to shop, and did very little to stimulate the consumer”.

However, he added that the company “remains in a good place. It is well managed, has clear plans and plenty of determination”.

Walmart forecast a pick-up in the coming financial year and Mr McMillon said February had “started off well”.

Walmart has been investing heavily in ecommerce, weighing on margins. Its “buy online, pick up in store” services have been popular, helping ecommerce sales rise 30 per cent in the fourth quarter to an undisclosed level, although the company is trying to compete more effectively with Amazon in general merchandise and delivery.

For the coming financial year Walmart said it expected like-for-like sales to rise 2.5 per cent at Walmart US, excluding fuel, and earnings per share across the group, adjusted for exceptional items, to increase between 1.5 per cent and 4.5 per cent.

The results come at a time of change in Walmart’s executive ranks. Departures in recent months have included Greg Foran, head of Walmart’s US business, Steve Bratspies, chief merchandising officer, and Andy Dunn, an ecommerce executive.