The stock fell to a three-year low of $60.18 United States per share on Wednesday, wiping more than $21 billion from the company’s market capitalization. Wal-Mart is facing strong competition from other retailers, online and offline.
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Wal-Mart plunged 10% in its biggest one-day percentage decline in years and its heaviest trading day since January 2009, after it forecast a drop of up to 12% in earnings per share in fiscal 2017. S&P 500 earnings are expected to have fallen 4.2 percent in the quarter from a year ago, according to Thomson Reuters data.
Wal-Mart also announced a new $20 billion share buyback plan, after retiring the previous shares authorization with the balance of $8.6 billion.
This disappointing guidance comes while their stores are working to fix business while being pressured by rivals including the traditional grocers, Amazon.com and dollar stores. It’s expanding into new store formats, such as a line of smaller stores designed for urban shoppers, in response to changing customer habits.
Mike van Dulken at Accendo Markets said: “US markets closed lower after the Wal-Mart profit warnings dented sentiment”.
This doesn’t come cheap. It has also been spending $1 billion to improve its website and opening new distribution centers, aiming to speed the delivery of online orders. Wal-Mart said in August it expects earnings of $4.40 to $4.70 a share, down from an earlier projection of as much as $5.05 a share. The mauling evaporated over $21 billion in market value.
The retailer forecast that sales for its full fiscal year would be flat as the company was hurt by unfavorable currency exchange rates. The company said it retired the rest of the $8.6 billion reaming for its repurchase authorization for 2013.
The sell-off and market price of Wal-Mart’s shares imply that Wal-Mart’s recent investments in e-commerce and wages will be unsuccessful in driving profits long-term. We note that Wal-Mart had increased its minimum wage to $9 an hour in April, and expects to increase it to $10 per hour in Feb 2016. “Target likely has the most direct overlap (and need to keep up) with Wal-Mart’s changes, in our view”.
Boosting worker pay has been an initiative of CEO Doug McMillian, who said, “Our investments in our people, our stores and our digital capabilities and e-commerce business are the right ones”.
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Walmart CFO Charles Holley said that the wage hike accounts for three-quarters of Walmart’s expected profit decline next year.
