Business

Wal-Mart shares fall the most since ’88

Wal-Mart Stores Chief Executive Officer Doug McMillon defended his attempt to revamp the retailer after a weak profit forecast sent the shares on their biggest decline in more than 27 years.
Wal-Mart Stores Chief Executive Officer Doug McMillon defended his attempt to revamp the retailer after a weak profit forecast sent the shares on their biggest decline in more than 27 years.

Wal-Mart Stores Chief Executive Officer Doug McMillon defended his attempt to revamp the retailer after a weak profit forecast sent the shares on their biggest decline in more than 27 years.

The CEO said in an interview that he’s focused on the long-term health of the company, even as his efforts to increase worker pay and improve e-commerce capabilities cause “a pressure point.”

“What we’re talking about is how we transform the company,” he told Bloomberg Television’s Stephanie Ruhle and David Westin. “We have got to get the company positioned to serve the customer in the long term.”

Wal-Mart said on Wednesday that earnings will decrease by 6 percent to 12 percent in the fiscal year ending January 2017. The prediction jolted analysts, who had estimated a gain of 4 percent on average, according to data compiled by Bloomberg. The dour outlook follows a protracted sales slump at Wal-Mart’s U.S. stores and mounting concern that the chain is losing ground to online competition such as Amazon.

The forecast was “far worse than anyone expected,” Charles Grom, an analyst with Sterne Agee & Leach, said in a note to clients.

Wal-Mart shares fell 10 percent to close at $60.03, the biggest one-day drop since January 1988. Even before the plunge, the stock was down 22 percent this year.

Wal-Mart has been pumping money into its workforce and e- commerce capabilities in a bid to reignite stagnant sales growth – investments that will continue in fiscal 2017. The company raised its base employee wages to $9 an hour in April and plans to boost hourly pay to at least $10 next year. The effort, combined with an expanded training program, added about $1 billion in costs this year and $1.5 billion next year.

The retail chain also said its board has authorized $20 billion in stock buybacks over a two-year period. That’s on top of a $15 billion repurchase program begun in 2013, but the move did little to placate investors. In addition, Wal-Mart is actively reviewing its portfolio for ways to streamline the business, McMillon said at the company’s investor day on Wednesday.

  Comments