Wal-Mart expects profit to fall amid transformation push
Wal-Mart expects its profit to fall as the world's biggest retailer works to fend off intensifying competition and adapt to changing shopping habits.
The company also forecast sales for its full fiscal year to be flat, hurt by unfavorable currency exchange rates. Wal-Mart had previously forecast sales growth of 1 to 2 percent.
Its shares tumbled nearly 9 percent to $60.83.
The disappointing guidance comes as Wal-Mart Stores Inc. faces a tough economy and pressure from rivals including traditional grocers, dollar stores and Amazon.com. At its annual meeting in New York City Wednesday, CEO Doug McMillon sought to reassure investors the company is working to transform in a rapidly changing retail landscape.
"We all know that retail has changed and will continue to change at an accelerating pace," said McMillon, who took the job in February 2014.
Under McMillon, Wal-Mart has accelerated the openings of smaller stores, which tend to be more conveniently located and let customers get in and out faster. The company is also stepping up its e-commerce efforts; online investments are expected to come to $1.2 billion to $1.5 billion this year, up from last year's $1 billion.
Such investments are expected to take a toll on profit in the near term. For its fiscal 2017, Wal-Mart expects earnings per share to be down 6 to 12 percent. That also reflects investment in keeping prices low and raising wages for workers, which the company hopes will lead to happier workers and improved service.
Wal-Mart, which is also facing pressure from worker groups, increased its minimum wages for U.S. employees to $9 per hour in April and will raise the minimum to $10 per hour by February 2016.
While the company's increased investments have helped to perk up sales and traffic at its stores, they've squeezed profits. In early October, it laid off 450 workers at its corporate headquarters as part of a push to become more nimble. There are more than 18,000 people who work at the headquarters in Bentonville, Arkansas.
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. Foran is spearheading a major overhaul of its U.S. business, which account for 60 percent of its total business. It's trying to make sure its stores are cleaner and well stocked. The stores have been criticized for messy aisles and not having enough workers on the selling floor to restock shelves.
By fiscal 2019, the company expects earnings per share to be up 5 to 10 percent from this year.
The company had lowered its profit forecast for this fiscal 2016 in August, saying it expects earnings to be between $4.40 and $4.70 per share, down from $4.70 to $5.05 per share.
The company also authorized a $20 billion share buyback program for the next two years.