Retail giant Wal-Mart Stores Inc (WMT) has announced a couple of fulfillment centers, fully dedicated to deliver U.S. online orders at a lower cost. The two centers, located in Texas and Pennsylvania, will house numerous items like electronics, toys, apparel, fitness equipment, sporting goods and many more.
The center, based in Texas, started shipping orders last week and will employ 275 full-time workers. The Pennsylvania center will employ more than 350 full-time associates and will open in the first quarter of fiscal 2015.
Walmart is uniquely positioned to ship online orders from stores and from its other distribution centers, as it has a high-quality transportation network. With the addition of these two facilities, Walmart will be able to provide its customers a quick and seamless online shopping experience. The company is also hopeful that the opening of these distribution centers will also boost online sales and expand product selection at Walmart.com.
We note that Walmart is currently battling sluggish sales. Moreover, according to recent media reports, Walmart is slashing product orders for the next two quarters of fiscal 2013 as it is trying to destock its inventory. Though Walmart has denied the reports, but investors, on their part, continue to remain skeptical of this Zacks Rank #4 (Sell) company as it has been posting declining same-store sales for the past few months.
In the recently concluded second quarter of fiscal 2014, Walmart posted softer-than-expected sales and missed the Zacks Consensus Estimate by 1.8%. This was on top of sluggish results announced in the first quarter. U.S. same-store sales in the second quarter declined 0.3% in contrast to 2.2% growth in the prior-year quarter and missed the guidance range of flat to 2% increase. Weak consumer spending environment and lower-than-expected inflation hurt comps in the quarter.
Walmart also lowered its sales guidance for fiscal 2014, signaling weak sales in the upcoming quarters. The company sharply lowered its net sales growth guidance from a range of 5%-6% to a range of 2%-3% due to weaker-than-expected performance in the first half. Moreover, Walmart warned of a challenging sales environment in the second half, which together with currency headwinds could hurt second half top-line growth.
The company expects the gloomy consumer spending environment to continue globally for some more time. The economic strains in the U.S. and abroad are likely to pressurize its low-income shoppers for the rest of the year.
We believe that a cautious consumer spending environment might impact the upcoming holiday season. However, Walmart is geared up to turn around its sluggish sales this holiday season and has unveiled plans to hire 55,000 seasonal employees and give more hours to thousands of other workers. The company is expected to add 600 workers during the holidays and other peak seasons in these two new facilities in Pennsylvania and Texas.
Other retailers that are better placed and worth considering include Dollar General Corp (DG), Ross Stores Inc (ROST) and Etablissements Delhaize Frer (DEG), all of which hold a Zacks Rank #2 (Buy).
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