Walmart fails to turn Covid growth into profit

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Walmart recorded a strong increase in sales during the Covid crisis, but unfortunately, it was unable to convert this growth into profit. The American retailer also worries about a meagre 2021, when the Covid measures are expected to phase out.

 

Disappointing profit

In the past financial year, which ended in January, Walmart recorded a total sale of 559.2 billion dollars (463.3 billion euros), which was 6.7 per cent higher than the year before. E-commerce, in particular, received an immense boost, growing by 79 per cent in its home market, the United States of America. However, this growth also proved very expensive: the operating profit fell by 9.6 per cent to 20.6 billion dollars (17 billion euros). So, although margins are supposedly improving, Walmart is not yet able to generate profit from its online activities.

 

In the all-important last quarter, the trend continued: although sales rose 7.3 per cent to 152.1 billion dollars (126 billion euros), profits did not meet expectations. The earnings per share of 1.39 dollars turned out significantly lower than the 1.51 dollars that analysts were expecting. The cause is not hard to find: costs due to Covid alone amounted to 1.1 billion dollars. E-commerce grew again in the quarter, by 69 per cent. 

 

During the last quarter, Walmart also sold British subsidiary Asda and the Japanese operations, which caused expensive write-offs on top. Nevertheless, Asda, during the Christmas period, the last one in American hands, recorded comparable sales growth of 5.1 per cent. Britons indulged in more premium products (+30 per cent) and shopped considerably more online (+76 per cent).

 

Little growth in 2021

Walmart now needs to maintain its Covid momentum and translate it into profitable growth. But CFO Brett Biggs is not sure if that will happen. In the coming year, the effects caused by Covid will ebb away, and the supermarket industry is one of the few that expects negative consequences from that. If the vaccinations bear fruit and people are allowed to go out more, they will probably spend less in supermarkets and more on hospitality and leisure. 

 

Therefore, the retailer expects stable or even slightly declining profit for the current financial year, while turnover will probably increase by a maximum of a few per cent. The retailer thus wants to invest more in automation, advertising and new services. For example, the company wants to deliver groceries all the way to customers' refrigerators, offer more pick-up options and increase pick-up capacity, and launch new financial services. 

 

Walmart+, Amazon Prime's competitor, which launched in September, will also be a key element of the strategy. The subscription service stimulates repeat purchases, and Walmart wants to use the acquired data for customised experiences and better marketing. All in all, Walmart is aiming for 14 billion dollars in capital expenditure this financial year.