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Sam’s Club Missed Estimates in Fiscal 4Q16, but Memberships Rose

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Comparable warehouse club sales declined in fiscal 4Q16

Wal-Mart Stores’ (WMT), or Walmart’s, 4Q16 performance in its Sam’s Club segment was disappointing. The retailer (XRT) (RTH) reported $52.3 billion in sales (excluding fuel) for the segment in fiscal 2016, which was up 1.4% YoY (year-over-year). Comparable club sales, or comps, growth came in at 0.4%.

However, fourth quarter sales were down by 0.1% on slower store traffic, which fell by 1.4% in the quarter. Same-store sales growth came in at -0.5% in fiscal 4Q16, which was below the company’s guidance of in the range of 1% comps growth for the segment.

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Category performance

Softness was evidenced in the grocery, fresh food, and technology, office, & electronics categories, which posted negative comps for 4Q16. Some of these categories are facing secular challenges. Food price deflation in proteins and dairy has affected sales for Sam’s Club and is likely to weigh down results for grocers like Delhaize Group (DEG) and Koninklijke Ahold (AHONY), despite positive trends in other categories. Also, a highly competitive environment for electronics negatively impacted the segment’s comps.

Rising membership income

However, the quarter wasn’t without its positives. Membership income rose, both during the quarter (up 5.6%) and the fiscal year (up 6.1%). This should boost future sales for the Sam’s Club segment. One of Walmart’s biggest competitors in the warehouse club category, Costco, (COST) also reported membership renewal rates at record highs.

The segment’s e-commerce performance has also been strong, boosted by the rollout of Club Pick-Up. E-commerce boosted club comps by 0.8 percentage points in fiscal 4Q16. We’ll discuss Walmart’s e-commerce performance in more detail in part six of this series.

Outlook

Walmart’s Sam’s Club segment has been in the midst of a transformation. It’s been trying to revive sales and memberships at Sam’s Club through the closure of under-performing clubs and by opening new ones. Last month, Walmart announced it was closing 269 stores, including four Sam’s Clubs. However, it is planning to open 7–10 new clubs in fiscal 2017.

Sam’s Club has also enhanced its omnichannel options, private brands offering, and health and wellness products. That being said, investors may have to wait for more positive performance news from the segment. The retailer is projecting flat comps for the segment in fiscal 1Q17.

Walmart and Costco together make up 9.6% of the portfolio holdings in the Consumer Staples Select Sector SPDR Fund (XLP).

Continue to the next part for a look at how Walmart is doing on the international stage.

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