Slump slams Walmart shares
Retail giant forecasts flat sales, up to 12% drop in profit in next fiscal year
Walmart expects its profit to take a hit as the world’s biggest retailer works to fend off intensifying competition by perking up customer service and adapting to changing shopping habits.
The company that is known for its low prices and sprawling supercentres also forecast sales for its full fiscal year to be flat, hurt by unfavourable currency-exchange rates. Walmart had previously forecast sales growth of one to two per cent. For its next fiscal year, it said profit could fall by as much as 12 per cent.
Its shares tumbled nearly nine per cent to US$60.83, which put them on track for their steepest one-day fall in more than 15 years.
The disappointing guidance comes as Walmart Stores Inc. works to fix its U.S. business amid pressure from rivals including traditional grocers, dollar stores and Amazon.com. At its annual meeting in New York City on Wednesday, CEO Doug McMillon sought to reassure investors that the company is transforming to keep up with 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, Walmart 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 ecommerce efforts. On Wednesday, it said it was expanding its online grocery with free pickup to 10 additional markets, making the service available in a total of 20 markets in the U.S.
Such moves, along with a push to improve the cleanliness of its U.S. stores, are expected to help attract more higher-income customers than in the past, McMillon said. But he noted the company would also remain focused on shoppers who are driven by value.
Walmart is under pressure on that front as well, with smaller discounters posing a greater threat. The company said its store brands will play a key role in addressing the “price gap” between itself and discounters.
For its fiscal 2017, Walmart expects earnings per share to be down six to 12 per cent. The company attributed a big portion of the decline to its investment in raising wages and providing more training for workers, which Walmart is hoping will lead to improved service.
Walmart, which is facing pressure from worker groups calling for better pay, increased its minimum wages for U.S. employees to US$9 per hour in April. The figure will rise to US$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.
By fiscal 2019, the company expects earnings per share to be up five to 10 per cent from this year