On Wednesday, Wal-Mart (WMT) announced surprising news on Wall Street – its profits will be dropping as much as 12% by next year as the company goes through restructuring its core business. Wal-Mart’s negative outlook comes as a result of revenue allocation to wage increases and competing with e-commerce giants like Amazon. Shares of Wal-Mart stock tumbled 10% in response to the news. The stock closed at $60.03 on Wednesday and has now fallen 30% this year and is on pace for its worst year since 1973.
Wal-Mart detailed next year’s costs of raising wages for its more than one million store workers. In April, the company raised the minimum hourly wage it pays those employees to $9, and will raise that to $10 for most in February. The higher pay will add $1.2 billion to costs this year and another $1.5 billion next year, Wal-Mart said.
Wal-Mart’s competition has affected revenues and sales. Competitors like Amazon that require no physical presence and can operate 24/7 hold the competitive advantage. Amazon exceeds Wal-Mart’s market capitalization by almost double at $267 billion. As a result, Wal-Mart plans to invest in online business to combat competition. Wal-Mart will invest an expected total of $1.1 billion in their e-commerce business in the 2017 fiscal year.
“Fiscal year 2017 will represent our heaviest investment period,” said Mr. Holley, the company’s finance chief. By fiscal 2019, earnings are expected to rise 5% to 10% per share. While short-term outlook is negative, through reform and restructure, Wal-Mart is optimistic about year 2019.
Wal-Mart news shook the markets. Dow Jones Industrial Average dropped 157.14 points, or 0.9%, to 16924.75. The S&P 500 lost 9.45 points, or 0.5%, to 1994.24. The Nasdaq Composite fell 13.76, or 0.3%, to 4782.85. The company’s outlook fueled more selling in consumer stocks. Investors had already been grappling with weaker-than-expected U.S. retail-sales growth of 0.1% in September from August.
By: Yael Shif