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Wal-Mart Stock Drops 10 Percent Amid Lowered Projections

3 min read

Shares of Wal-Mart Stores Inc. of Bentonville ended the day down 10 percent after CFO Charles Holley revealed that the retailer’s earnings per share could drop 6 percent to 12 percent in the fiscal year that will begin in February 2016.

Wednesday’s drop in Wal-Mart shares is the most in more than six years. Shares (NYSE: WMT) closed down $6.70, or 10 percent, at $60.03.

Holley, speaking Wednesday at the retailer’s 22nd annual “Meeting for the Investment Community” in New York, also said earnings per share would be flat in the current fiscal year, between $4.40 and $4.70. But he added that by fiscal 2019 earning per share are expected to increase by 5 percent to 10 percent.

Wal-Mart’s fiscal year begins Feb. 1 but is named for January in which it ends; its current fiscal year, then, is 2016.

Over the last three years, Holley said, Wal-Mart has generated about $75 billion in net income. The retailer plans to generate around $80 billion in the next three years. Holley called this time frame “an investment phase” for the company, and it comes as the retailer spends more money on improving its stores, its workforce and its e-commerce efforts.

A key piece of the strategy includes a $1 billion program to raise wages at its U.S. stores. In 2015, starting wages began at $9 per hour; by 2016, they will start to $10, Holley said.

Still, the retailer plans to continue to pay dividends. For the last 42 consecutive years, shareholder dividends have increased and are projected to continue to rise in fiscal years 2015 and 2016, at $1.92 and $1.96 respectively.

Holley said Wal-Mart has plans to buy back $20 billion of its shares within the next two years, a move that can improve the stock price as ownership of the company is divided into fewer shares.

Wal-Mart is also focusing on expanding the e-commerce possibilities, including emphasis on a new grocery pickup program, currently in a trial phase. Customers order groceries online and can pick them at select Walmart Neighborhood Market locations. By the end of the year, the service will be available in 20 different markets across the U.S., executives said.

According to CEO Doug McMillon, this service is drawing new customers to stores.

“Customer response to ordering groceries online and on mobile and picking up in the parking lot has been remarkable,” McMillon said. “One in four of those online grocery customers in Denver is new to Wal-Mart.”

Neil Ashe, Wal-Mart’s president and CEO of Global eCommerce, said that in northwest Arkansas, another test market for the service, one in six customers who uses the grocery pickup is new to Wal-Mart. Not only does the service draw new customers, they also purchase more items, he said.

“The basket for customers that shop online is two times the average Supercenter basket,” said Greg Foran, president and CEO of Wal-Mart U.S.

Although there is emphasis on improving e-commerce opportunities, McMillon said that it’s key for the online and brick-and-mortar shopping experiences to be seamlessly combined.

“Wal-Mart is uniquely positioned to win the future of retail,” McMillon said. “We all know that retail has changed and will continue to change at an accelerated pace. We know there’s a lot more change to come and we’re motivated by it. We are taking decisive steps now to change and grow our business.”

The average in-store only customer spends $1,400 per year, while the average online-only customer spends $200 per year. Customers who use both average $2,500 per year. McMillon said his goal is for customers to not even think about where the purchase was made, as the two will work together so well.

This is Holley’s last meeting. He is retiring at the end of the year and will be succeeded by Brett Biggs, who has been CFO and executive vice president of Wal-Mart’s international business since 2014.

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