Investors dump Walmart shares after profit warning
Walmart ( WMT), which has struggled for years to boost stagnant sales in the U.S., on Wednesday forecast a surprising decline in annual profit, with shares of the world's largest retailer taking it on the chin.
Earnings will fall 6 to 12 percent in fiscal 2017, which ends in January of that year, the company said.
The retailing giant boosted wages for its workers to at least $9 an hour in April, or $1.75 higher than the federal minimum wage of $7.25. In February, 2016, employee wages will rise to at least $10 an hour.
But the notion that the wage increases were to blame for the retailer's profit woes were dismissed by the union-backed Making Change at Walmart, which said in a statement: "Hard-working Walmart employees all across the country began seeing their hours cut soon after the new wages were announced."
Shares of the Bentonville, Ark.-based company dropped as much as 9.9 percent to $60.12, marking its steepest descent in 15 years. Ahead of Wednesday's plunge, shares were down 22 percent for the year. The company's board has authorized a stock buyback of as much as $20 billion over the next two years.
"I am not sure if the wheels have come off but the guidance is well below analyst consensus and even below some of the bearish analysts on the street," Brian Yarbrough, an analyst with Edward Jones, said in an email.
Under CEO Doug McMillon, Walmart has focused on improving its e-commerce operations and store upgrades, a strategy that won't be cheap to implement. Capital expenditures are expected to reach $11 billion in fiscal 2017 and digital spending is forecast to hit $1.1 billion.
Retail consultant Howard Davidowitz estimates that 55 percent of Walmart's business is in food and consumables, areas it has stumbled in the face of competition from rivals including Kroger (KR), the largest traditional grocer, and warehouse retailer Costco (COST).
The retailer's e-commerce push, which has including the acquisition of 17 companies, has been ineffective, said Davidowitz, the chairman of Davidowitz & Associates.
"They are sitting in Bentonville and trying to run a business of this size. and I don't think it can be done," he told CBS MoneyWatch. "What they have to do is break themselves into smaller companies, maybe three or four."