Wal-Mart (WMT) Shares plunged 10% Wednesday on profit warnings, the biggest one day decline in 25 years. The company blamed higher wages, e-commerce competition, and lower prices.
Wal-Mart Chief Executive Doug McMillon said a $1.5 billion investment in wages and training, including raising the minimum store wage to $10 an hour from $9, were needed to improve customer service and would account for three-quarters of the expected 6 percent to 12 percent drop in earnings per share next year.
Wal-Mart also announced a $20 billion share buyback but the drop in its share price wiped out close to the same amount in market value, and the 10 percent drop was the worst one-day percentage performance since January 1988.
The world’s largest retailer by revenue said it would invest several billion dollars to lower prices over the next three years. That sparked worries of a price war, and shares of rivals including Target and Home Depot also fell.
The company is building out a network of warehouses to handle e-commerce, a costly move Wal-Mart sees as essential to stopping Amazon and other rivals from stealing its best customers.
At the same time Wal-Mart projected slower growth in new stores, with 85-95 of the smaller Neighborhood Markets format planned for the fiscal year ending in January 2017, down from 160-170 planned for the current fiscal year. Supercenter openings would slow to 50-60 in fiscal 2017 from 60-70 this year.
Price competition was one reason for the slower growth. Foran said that Wal-Mart could not compete with local grocers in some markets, a factor that has played into its scaled back expansion plans for smaller stores.
Capital Investment Financial Engineering
In a press release Wal-Mart announced “Capital investments will be approximately $11.0 billion for fiscal year 2017 and will remain flat in fiscal years 2018 and 2019. This is below the revised fiscal year 2016 estimate of approximately $12.4 billion, primarily due to a moderation of physical store expansion.“
Wolf Richter took Wal-Mart to task for that statement in his appraisal The Chilling Thing Wal-Mart Said about Financial Engineering.
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