Why Wal-Mart Stores Inc. Dropped 12% in October

By Joe TenebrusoFool.com

WMT data by YCharts

What:Shares of Wal-Mart fell 11.7% last month, according toS&P Capital IQ data. The retail giant is facing rising labor costs and declining profits, as well as concerns that the company's current struggles could be a sign of more to come.

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So what:During Wal-Mart's investor day meeting on Oct. 14, management warned that higher wages, price cuts, and investments in e-commerce would lower earnings by as much as 12% in fiscal 2017. As one of the companies most exposed to the "Living Wage" movement, Wal-Mart has felt pressure to raise its pays for store employees.

The company also faces intense competition from the e-commerce space, as well as dollar stores, discount chains, and grocery stores, all of which continue to make it difficult for Wal-Mart to raise prices.

Management believes its investments in its people will help to improve customer service and the overall in-store shopping experience. It also hopes that its e-commerce initiatives will allow the company to "build deep digital relationships with customers".

Investors, however, were unimpressed -- even the announcement of a $20 billion share repurchase program wasn't enough to stem a 10% drop on the day of the investor meeting -- the largest one-day decline for Wal-Mart's stock in 25 years.

Now what:While it will be interesting to see how management's new strategy will play out,the core problem continues to be that Wal-Mart, like other primarily brick-and-mortar retailers, finds itself on the wrong side of a powerful trend: the relentless growth of e-commerce. Juggernauts like Amazon continue to take share from less innovative rivals, and that's a trend that's likely to continue for the foreseeable future. Even after this decline, Wal-Mart's stock may still be a riskier investment than many investors currently believe.

The article Why Wal-Mart Stores Inc. Dropped 12% in October originally appeared on Fool.com.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. 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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