American store chain Walmart drastically lowered its profit forecast because of higher wages, additional eCommerce investments and the downside of an expensive dollar.
Profit expectation down 6 to 12 %
For its coming 2017 fiscal year, Walmart expects a 6 to 12 % profit drop per share, considerably less than the + 4 % analysts had predicted. On the one hand, the company has to deal with higher minimum wages and increased investments in staff training and on the other hand, the killer competition from eCommerce. The company missed the internet hype completely and now has to pay a lot of money (two billion dollars over the next two years) to catch up to (or at least not lose too much ground to) competitors like Amazon.
The world's largest retailer also expects negative effects from the strong dollar. "Fiscal year 2017 will be the year of the biggest investments", CEO Charles Holley said, although he is convinced these investments will lead to a 5 to 10 % profit increase starting in 2019.
Investors do not seem too keen on waiting that long: the profit alert did not go down well and hammered Walmart's share down 8.5 %. Even the news that it wanted to buy back 20 billion dollars' worth in shares, did not soothe anyone. In the blink of an eye, 17 billion dollars (15 billion euro) of the American retailer's worth evaporated, its biggest hit in years.