NEW YORK CITY: Wal-Mart Stores cut its profit outlook due to increased spending on employee wages and e-commerce on Wednesday (Thursday in Manila), sending shares in the world’s largest retailer plunging.
Wal-Mart predicted earnings per share would fall between 6 percent and 12 percent in fiscal 2017 that begins on February 1, its “heaviest” year in terms of investment.
Wal-Mart plans $1.5 billion in extra spending in 2017, with about 75 percent of that sum going to higher wages, company executives said.
The company also trimmed its current fiscal 2016 sales outlook to “relatively flat” from a prior projection for a gain of 1 percent to 2 percent, citing the strong dollar.
Wall Street’s reaction was swift and brutal, with Wal-Mart shares diving more than nine percent, pushing the Dow into the red. The blue-chip heavyweight closed with a 10.0 percent loss.
Investors also punished other retail stocks, including Target (-3.5 percent), Costco Wholesale (-1.6 percent), Best Buy (-6.0 percent) and TJ Maxx parent TJX (-1.3 percent).
The lower profit forecast overshadowed an announcement that Wal-Mart plans $20 billion in share repurchases.
“There is a big share buyback here, but it just is not enough to offset guidance that is this horrible,” said Jon Ogg of 24/7 Wall Street.
“The news is so much less than what was expected that it created a spillover into retail stocks and was a big drag on the Dow Jones Industrial Average.”
Wal-Mart executives depicted the hit on profits as a period of short-term pain that would lead to long-term prosperity. Chief financial officer Charles Holley said earnings by fiscal year 2019 would rise 5 percent to 10 percent compared with the prior year.