Wal-Mart delivered a few less than exciting news to investors at its earning forecast on Wednesday.
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Walmart blamed the profit fall on the strength of the dollar, plus spending to increase wages, improve its stores and boost online sales. Analysts had estimated a gain of 4% on average, according to data compiled by Bloomberg.
In an effort to appeal to shareholders, Holley said the company plans to utilize its new $20 billion stock repurchase agreement over the next two years as it will generate $80 billion in free cash over the next three years. Nonetheless, the surprise warning highlights the company’s challenges.
Last year, McMillon also replaced Wal-Mart’s U.S CEO last year with Greg Foran, who was previously head of Wal-Mart China business.
Wal-Mart surprised investors by predicting a sharp drop in earnings next year, citing in large part its pledge to raise wages for most United States workers.
This doesn’t come cheap.
So far this year, Walmart (NYSE: WMT) has lost almost 30 percent of its market value – the equivalent of $79 billion. Even with a tough period coming, those are formidable advantages.
Wal-Mart had lowered its profit forecast for this fiscal 2016 in August, saying it expects earnings to be between US$4.40 and US$4.70 per share, down from US$4.70 to US$5.05 per share. Delta Air Lines Inc’s (DAL.N) shares were up 1.8% after its chief executive said he expects the market to be “ripe” for the carrier to buy used widebody planes over the next 12 to 36 months, as low interest rates have created a market bubble.
JPMorgan’s stock fell $1.75, or 2.8 percent, to $59.83.
Wal-Mart CEO Doug McMillon said their employees deserved the wage increases but that they might not have been clear enough in explaining the highest costs from those increases. In another negative development, it reported that operating expenses would eclipse its sales growth for the fiscal year, which has not been aided by the much-publicized raising of its pay-floor, which will reportedly cost it $1.2 billion in fiscal year 2016. The share buyback could be a sign for the moderate sales growth and margin contraction.
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Wal-Mart has taken several steps to better position itself for the future, including opening fewer of its signature supercenter stores so it can invest more in its e-commerce business and its small-format Neighborhood Market stores. The company will also put $1.1 billion into shoring up its digital platforms. ($20.60B), Dollar General Corp.
