Wal-Mart Stores Inc. Wednesday surprised and disappointed its investors with news of a dimmer than expected outlook into 2017; CFO Charles Holley told analysts that overall earnings will likely to be down between 6% and 12% from this year, but will likely rise again by 2019. In one of its biggest one-day declines, Wal-Mart's stock price fell 10% on the news, sweeping away some $20 billion in market value.
The retailer said that the strong dollar, planned increases in wages and training to its workers, and efforts to improve its e-commerce are weighing down profits. Holley said that costs related to wages and training alone would ding operating profits by some $1.5 billion in fiscal 2017.
Wal-Mart executives did say Wednesday that new omni-channel initiatives like grocery delivery and in-store pickup are seeing great success, even attracting new shoppers to Wal-Mart. And the company, in a pointed salvo against Amazon, announced that it’s opening OneOps, the cloud-based management startup it bought two years ago, making aspects of it free and open source in an effort to stimulate competition among cloud-based vendors.
For years, dominant and growing Wal-Mart was content to go along as it always had, focused on “always low prices” and cutting the costs — including suppliers’ charges, workers’ wages, and store logistics — to make them possible.
But fast-forward to now, and Wal-Mart in many ways is playing catchup, under pressure to raise wages and improve working conditions, to clean up its stores and improve its inventory methods, and to get its e-commerce operations able to handle shoppers’ expectations.
Despite Wal-Mart CEO Doug McMillon’s assertion Wednesday that he “likes our chances” against Amazon, which he implied is at a disadvantage because of its lack of stores (in contrast to Wal-Mart’s vast store network) the e-commerce giant, with its superior assortment, search, and fulfillment capabilities, looms on Wal-Mart’s horizon.
Meeting its challenges is a tall order, however, considering how large the retailer is and considering that the company has yet to make some fundamental decisions about what might actually have to change. In fact, Tigress Financial Partners chief investment officer Ivan Feinseth told Bloomberg that major growth at Wal-Mart may have become a nearly impossible task.
"There is no way they can continue to grow, they are just too big," Feinseth told Bloomberg before Wednesday’s forecast. "They do $500 billion worth of revenue — how are you going to grow that?"
It’s all going to take money and time—and admitting that to Wall Street yesterday was itself an expensive task. If enough investors do believe the company is up to the challenges it faces, the stock will bounce back, eventually.