Wal-Mart Growth Investments Pressure Fiscal Year Outlook

At its 22nd annual investment community meeting held today, October 14, Wal-Mart Stores noted that foreign exchange rate fluctuations and investments in technology and employee compensation would continue pressuring reported financial results. Company investments outlined today, Wal-Mart asserted, would drive sales growth by strengthening the business in the United States and online.

Wal-Mart noted that it intended the investment framework to enhance the experience in stores, leverage its unique supply chain capabilities to lower costs and build deep digital relationships with customers.

The retailer acknowledged that, due to stronger than anticipated impact from currency exchange rate fluctuations, it expects flat net sales growth for the current fiscal year. With the impact of currency exchange fluctuations excluded, net sales growth would be about 3% for the fiscal year. The new guideline is below one the company announced in February, which was for net sales growth of between 1% and 2%.

At the meeting, Charles Holley, Wal-Mart’s evp and CFO, outlined the company’s financial priorities for growth and detailed the investment and expansion plans for its next fiscal year, 2017. He pointed out that the year would be another that required pouring cash back into the business.

“Fiscal year 2017 will represent our heaviest investment period,” Holley said in his meeting presentation. “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. As a result of these investments, we expect earnings per share to decline between 6% and 12% in fiscal year 2017. However, by fiscal year 2019, we would expect earnings per share to increase by approximately 5% to 10% compared to the prior year.”

He also noted, “Our sales growth over the next three years is estimated to range between 3% to 4% annually, which will add approximately $45 to $60 billion in sales. Within the last year, we have experienced traffic and comp sales improvements in our Walmart U.S. business, and our plan reflects that positive momentum continuing.”

Doug McMillon president and CEO, Wal-Mart Stores, maintained, “These are exciting times in retail given the pace and magnitude of change. We have strengths and assets to build on, and are making progress to position the company for the future. 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 explained that Wal-Mart is bringing a disciplined approach to managing financial resources and the company operational portfolio.

“We are actively reviewing our portfolio to ensure our assets are aligned with our strategy. But we will be thoughtful in our approach, recognizing our responsibility to drive shareholder value,” he said.