Wal-Mart Stores Inc. Slashes Sales Outlook

Image source: Wal-Mart Stores.

Wal-Mart Stores reported fiscal 2016 fourth-quarter results on Feb. 18. Store closings, slowing online sales, and a strong U.S. dollar are cutting into the retail titan's revenue and profits.

Wal-Mart Stores results: The raw numbers

Source: Wal-Mart Stores Q4 2016 earnings press release.

What happened with Wal-Mart Stores this quarter?Total revenue fell 1.4% to about $129.7 billion, as foreign exchange rate movements continue to dampen results. On a constant-currency basis, total revenue rose 2.2% to $134.4 billion.

U.S. comparable-store sales edged up 0.6% -- making Q4 2016 Wal-Mart's sixth consecutive quarter of positive comps -- as traffic increased 0.7%. The performance of Wal-Mart's smaller-format Neighborhood Market stores was particularly strong, with comps increasing 7%. These rising comps helped fuel a 2.4% year-over-year increase in Wal-Mart's U.S. sales to $81.5 billion.

However, the U.S. revenue gains were offset by a 9.7% decline to $32.7 billion in international sales, which saw a negative impact of $4.7 billion from foreign currency exchange fluctuations. On a constant-currency basis, Wal-Mart's international sales rose $3.3% to $37.4 billion.

Sales at Sam's Club declined 2.2% to $14.5 billion, but they were down only 0.1% when excluding the effects of lower gas prices.

More troubling is that Wal-Mart's online revenue growth is decelerating. Global e-commerce sales increased 8% on a constant-currency basis. That's down from growth of 10% in the third quarter and 22% in fiscal 2015.

Wal-Mart appears to be losing ground to e-commerce titan Amazon.com , whose sales jumped 22% in the fourth quarter and 20% in 2015. This, however, is unsurprising, as some estimates have Amazon accounting for more than half of all the growth in U.S. e-commerce sales over the past year.

Profit growth also remains a challenge. Store closures and wage increases led to a 16.4% (13.6% on a constant-currency basis) decline in Wal-Mart's consolidated operating income to $6.6 billion. Even after adjusting to exclude the effects of store closures and other non-recurring items, fourth-quarter earnings per share declined 7.5% to $1.49.

Cash flow and capital returnsDespite the sluggish sales and lower profits, Wal-Mart continues to generate enormous amounts of cash. Operating and free cash flow totaled $27.4 billion and $15.9 billion, respectively, during fiscal 2016.

That allowed Wal-Mart to return $10.4 billion to shareholders through dividends and share repurchases in the past year. Investors can expect more of the same in the year ahead, as Wal-Mart announced that it would be raising its dividend to $2.00 per share, a 2% increase, making fiscal 2017 the company's 43rd consecutive year of dividend increases.

Looking forwardFor the first quarter, Wal-Mart expects to earn between $0.80 and $0.95 per share.And fiscal 2017 full-year earnings per share are projected be in the range of $4.00 to $4.30, which is largely in line with the 6% to 12% decline from fiscal 2016 that management forecast during Wal-Mart's investor day presentation in October.

However, Wal-Mart cut its full-year sales outlook, with net sales growth now expected to be "relatively flat" versus the company's prior guidance for growth of 3% to 4%. The effect of the store closures announced in January and a strengthening U.S. dollar were cited as the reasons for the reduced forecast.

Still, management remains optimistic.

"We're pleased with the way we closed out the year with a healthy balance sheet, strong cash flow, and solid returns to shareholders," said CFO Brett Biggs in a press release. "The investments we are making in our associates, our stores, and digital capabilities are better positioning Wal-Mart now and for the future."

The article Wal-Mart Stores Inc. Slashes Sales Outlook originally appeared on Fool.com.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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