story by Kim Souza
ksouza@thecitywire.com
Wall Street did not like what Wal-Mart execs had to say on Wednesday (Oct. 14) about the heavy investments in people, technology and supply chain changes. The investments resulted in the retailer lowering its earnings guidance by as much as 12% for next fiscal year.
“Fiscal year 2017 will represent our heaviest investment period. Operating income is expected to be impacted by approximately $1.5 billion from the second phase of our previously announced investments in wages and training as well as our commitment to further developing a seamless customer experience,” said Chief Financial Officer Charles Holley during the retailer’s annual investor conference in New York City on Wednesday.
That prompted shareholders to begin selling off Wal-Mart stock (NYSE: WMT) as soon as the lower guidance was announced. Shares tumbled nearly 9% in early morning trading to $60.98 in heavy volume on and setting a new 52-week intraday low of $60.14.
He said despite the lower earnings growth in fiscal 2017, the company expects it will grow sales 3%-4% annually over the next three year period and add between $45 billion and $60 billion in revenue. Holley said that is equal the size of adding a Fortune 50 company to the Wal-Mart bottom line. He said capital expenditures will be about $11 billion for fiscal 2017 and remain flat the next two years.
The company also expects to spend about $1.1 billion on wages, training and its e-commerce-digital initiative in fiscal 2017, which is crucial if Wal-Mart expects to win in the future of retail. He said by fiscal 2019, Wal-Mart expects earnings will see a strong rebound (5% to 10%) from the investment in prior years.
Wal-Mart Stores CEO Doug McMillon told investors that the company’s investments in people are starting to pay off.
“We’re encouraged by recent customer feedback and will continue to get stronger. Our investments in our people, our stores and our digital capabilities and e-commerce business are the right ones. We will be the first to build a seamless customer experience at scale to save our customers not only money but also time," McMillon said.
In an effort to appeal to shareholders, Holley said the company plans to utilize its new $20 billion stock repurchase agreement over the next two years as it will generate $80 billion in free cash over the next three years.
The City Wire will update this story later today.