Wal-Mart warns on profit, stock has steepest decline in 25 years

Wed Oct 14, 2015 5:32pm EDT
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By Nathan Layne and Sruthi Ramakrishnan

(Reuters) - Wal-Mart Stores Inc warned on Wednesday that higher wages as well as spending on e-commerce and lower prices would cut earnings per share as much as 12 percent next fiscal year, sparking the steepest one-day decline in the company's shares in 25 years.

Wal-Mart faces tough competition on multiple fronts, from the relentless expansion of online leader Amazon.com Inc to dollar stores and supermarkets fighting for a piece of its grocery business. Its international operations are also under pressure with a stronger dollar eating into sales.

Wal-Mart Chief Executive Doug McMillon said a $1.5 billion investment in wages and training, including raising the minimum store wage to $10 an hour from $9, were needed to improve customer service and would account for three-quarters of the expected 6 percent to 12 percent drop in earnings per share next year.

Wal-Mart also announced a $20 billion share buyback but the drop in its share price wiped out close to the same amount in market value, and the 10 percent drop was the worst one-day percentage performance since January 1988.

The decline in Wal-Mart shares pulled down the Dow Jones Industrial Average, accounting for a quarter of the 1 percent drop in the index.

The world's largest retailer by revenue said it would invest several billion dollars to lower prices over the next three years. That sparked worries of a price war, and shares of rivals including Target and Home Depot also fell.

"We can deliver stronger financial performance in the short-term simply by running our core business better but that won’t be enough," Chief Executive Doug McMillon said at an investor meeting in New York.

The company forecast earnings per share would grow 5-10 percent in the fiscal year ending in January 2019.   Continued...

Souvenir t-shirts are seen for sale at the Wal-Mart Neighborhood Market in Bentonville, Arkansas, June 4, 2015.  Wal-Mart will hold its annual meeting June 5, 2015.  REUTERS/Rick Wilking