Wal-Mart Warns Wall Street That Its Profits Will Fall; Shares Plummet
Wal-Mart delivered a disappointing message to Wall Street on Wednesday: Sales will remain sluggish, and profit will be hampered next year by efforts to raise workers’ salaries and improve e-commerce capabilities.
The mega-retailer’s stock plunged 10 percent on the news, wiping out about $20 billion in market value.
The lackluster forecasts underscore the problems that have dogged Wal-Mart in recent years: It has scrambled to catch up online to Amazon.com, which eclipsed it as the world’s most valuable retailer this year. And its focus on rock-bottom prices has come at the expense of having clean, well-stocked stores.
On Wednesday, the company acknowledged that it still had far to go to address these issues but sought to assure investors that pouring money into e-commerce and raising its workers’ wages were crucial to boosting business.
“You clean up your house before you invite people over,” said chief executive Doug McMillon.
To improve sales, Wal-Mart executives said at their annual meeting with investors that one key tactic would be to appeal not just to its traditional discount customers but also to middle- and upper-middle-income households. A focus on fresh food and smaller store formats such as its Neighborhood Markets could help win over wealthier shoppers, McMillon said.
Wal-Mart said its revenue is expected to grow by 3 to 4 percent for each of the next three years, totaling $45 billion to $60 billion over that period. But earnings per share — a measure of profitability — will dip significantly next year.
During the recession and in its immediate aftermath, the retailer became so focused on low prices that customers’ experiences suffered at its brick-and-mortar stores. Store shelves were left empty, and customers complained about long lines. Raising wages and providing more training to its workers, moves that the retailer announced in February, are part of a strategy to fix that. By creating a more appealing workplace, the company says, it will be able to lure and retain better talent.
On Wednesday, Wal-Mart’s U.S. chief executive, Greg Foran, said that his team has made big strides in its effort to get its stores “clean, fast, friendly,” which is helping improve sales and increase the number of people flowing through stores.
Wal-Mart’s efforts come as Target, its chief brick-and-mortar rival, has been building momentum under new chief executive Brian Cornell, delivering improved sales and store traffic. Wal-Mart also faces increasing pressure from online juggernaut Amazon.com.
Wal-Mart’s desire to more directly challenge Amazon online was clearly displayed earlier this year when it answered Amazon’s massive Black Friday-like sale, Prime Day, with a deals bonanza of its own.
