The world’s largest retailer expects per-share profit would
drop between 6% and 12% in fiscal 2017, which starts in February. The company
also said Wednesday it now expects sales growth for the current fiscal year to
be relatively flat. In February, the company had called for sales growth of 1%
to 2%. Shares of the retailer dropped more than 9% in midday trading—one of its
biggest single-day declines—as executives revealed their targets during a
meeting with financial analysts in New York. The stock has now declined nearly
30% this year and is on pace for its worst year since 1973.
The company’s chief financial officer, Charles Holley, who
announced plans last week to retire at the end of December, said the
company’s program to raise hourly wages accounted for 75% of the lowered
earnings target. He said the company expected to spend an additional $1.2
billion on wages this fiscal year and another $1.5 billion in fiscal 2017.
Earlier this month, Mr. McMillon unveiled plans to cut
450 jobs at the company’s Bentonville, Ark., headquarters. Wal-Mart also
said it would slow down store expansion as it reins in capital-spending plans.
Wal-Mart now expects capital investments of about $11 billion next business
year, down from the $12.4 billion it expects to spend this year. Wal-Mart U.S.
CEO Greg Foran said the company will build 50 to 60 supercenters in
fiscal year 2017. “We continue to moderate our supercenter building out next
year to ensure long-term success,” said Mr. Foran.
Wednesday’s dour outlook comes after the retailer reported
in August a 15% drop in quarterly net profit from the previous year
and cut its earnings outlook for the full year. Wal-Mart is facing strong
competition from other retailers, online and offline. At the same time, the
company’s store sales have suffered in recent years because shoppers too often
found items out of stock and complained of messy stores and unfriendly service.
Wal-Mart has responded by investing to make stores clean,
fast, friendly and well-stocked. At the same time, the retailer is boosting its
e-commerce infrastructure and raising wages for store employees. In April, the
company raised the minimum wage it pays store employees to $9 and will
raise that to $10 for most in February.
Wal-Mart’s outlook weighted on shares of other U.S.
retailers as investors worried that Wal-Mart’s struggles with aggressive
spending will make it tough to be a retailer over the next couple of years.
Target Corp. fell more than 4% while smaller discount stores Dollar General
Corp. and Dollar Tree Inc. fell about 3%. The outlook came the same day that
fresh U.S. government data showed that American consumers increased their
spending in September amid strong auto sales, but slowing job growth and
overseas turbulence has curbed some discretionary spending.
Retail sales rose a seasonally adjusted 0.1% in September
from August, the Commerce Department said Wednesday. Economists had expected a
rise in September of 0.2%. The increase was largely due to a 1.8% month-over-month
increase in auto sales.
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