Walmart trims profit forecast amid investments

WALMART Inc trimmed its fullyear earnings forecast on Tuesday following the major acquisition of India’s online retailer Flipkart and vowed to plough ahead with more investment in the battle for retail market share with Amazon.

Walmart, which also signalled that sales growth at US stores could slow modestly next year, said heavy investment was needed to meet customer expectations in a fastchanging retail environment.

Investors appeared to buy that view, bidding shares higher after early weakness.

CEO Doug McMillon said the company hoped to return to the robust profit margins of the past but added that investment was needed to position Walmart for the longer term.

“Our goal is to always be the low-price leader,” he said, but added later that “there are certain environments where we would raise prices.”

The world’s biggest retailer cut its profit target for the current year to a range of $2.65 to $2.80 per share from the prior range of $2.90 to $3.05 following the hit from Flipkart.

Walmart also signalled that spending on Flipkart would likewise dent profit levels next year, its fiscal 2020.

Walmart closed the $16 billion acquisition of a 77 per cent stake in Flipkart in August, its biggest-ever deal.

Walmart executives – who have occasionally taken heat in recent years over heavy investment in higher store wages, e-commerce and acquisitions – have defended the investments as necessary in the changing retail environment.

Shares of Walmart, which had initially sunk on the forecast, rose 2.1 per cent to $95.81 as investors seemed to take the heavy spending in their stride.

Before sealing the deal for Flipkart, Walmart competed directly with Amazon, which had designs on accelerating its own growth in India.

Walmart’s revenues last year were more than twice that of Amazon, but the latter has seen massive growth as it has expanded into more business lines and further afield from its Seattle home and original mission of selling books online.

But just a s A ma z on ha s made more forays into bricka nd-mor t a r ret a i l w it h it s pu rcha se of W hole Foods Market a nd t he opening of some of it s ow n phy sic a l stores, Wa l mar t ha s made major e-commerce acquisit ions a nd spent heav i ly on mobile applications and other tech-oriented ser v ices.

Walmart is also taking more steps in entertainment – another area in which Amazon is active – last week unveiling a joint venture with Eko, an interactive video company, to create content such as cooking shows.

At the same time, Walmart executives have tried to boost the in-store shopping experience, raising wages and investing in store beautification.

The company plans about $11 billion in capital spending next year, about level with the current year, but will spend very little on new stores, executives said.

McMillon said higher wages had lessened employee turnover in the US and helped lead to a multi-year streak of US c o mpara b l e s t o r e s a l e s growth.

Walmart projected that comparable sales growth at US stores next year – fiscal 2020 – would be 2.5 per cent to 3.0 per cent. Walmart’s US sales are on track for 3.0 per cent growth this year, the company said in August.