Wal-Mart Stores Inc. Slumps on Disappointing Earnings Outlook

By Timothy GreenFool.com

What: Shares of retailer Wal-Mart tumbled on Wednesday following the company's investor day meeting. Wal-Mart guided for EPS to decline by 6%-12% in 2017, driven by investments in higher wages and e-commerce, with earnings growth expected to return in 2018. At 2:55 p.m., the stock was down about 9.6%

So what: Wal-Mart enacted a variety of initiatives aimed at its employees earlier this year, including a $9 hourly wage for new employees, training programs that create a path to $10 per hour for all employees, and new scheduling procedures. Wal-Mart had previously announced that it expects earnings in fiscal 2016 to decline, in part due to higher labor costs, but investors were clearly not anticipating a further decline in 2017.

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Wal-Mart expects to grow sales by $45 billion to $60 billion over the next three years, with e-commerce being a major contributor. Wal-Mart guided for total capital expenditures to reach $12.4 billion in 2016, with investments in both its stores and e-commerce growing compared to 2015. Slower store growth will lead to just $11 billion of capex in 2017, with e-commerce accounting for $1.1 billion..

Wal-Mart also announced a new share buyback program, with a fresh $20 billion earmarked for share buybacks over the next two years. This news was completely overshadowed by the company's weak earnings guidance.

Now what: Wal-Mart's plan is for these investments in its employees, its stores, and e-commerce to pay off in the long-run, and the company expects to return to earnings growth in 2018, with 5%-10% EPS growth in 2019. According to CEO Doug McMillon, these initiatives are already paying off, with approval ratings from customers on the rise and sales growing at U.S. stores.

Following the decline today, shares of Wal-Mart are now down 33% from their 52-week high. The company's disappointing guidance dragged down a variety of other retail stocks, including competitor Target and discounter Dollar General , which are down 4% and 3.4% respectively on the news. Fears that Wal-Mart's higher wages could force other retailers to follow suit are likely contributing to today's broad decline in retail stocks.

The article Wal-Mart Stores Inc. Slumps on Disappointing Earnings Outlook originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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