19 Oct

Walmart Stock Suffers as the Company Slashes Earnings Outlook

WRITTEN BY Phalguni Soni

Highlights from Walmart’s 22nd Annual Meeting for the Investment Community

Walmart (WMT), the world’s largest brick-and-mortar retailer, held its 22nd Annual Meeting for the Investment Community on October 14, 2015. At the meeting, company management outlined the company’s strategic plans for fiscal 2016 ending January 31, 2016, and for the next three years through fiscal 2019.

Walmart Stock Suffers as the Company Slashes Earnings Outlook

Revenue growth

Walmart expects to generate incremental sales from $45–$60 billion over the next three years, a projected CAGR (compounded annual growth rate) of 3%–4% from fiscal 2016 to fiscal 2019.

Walmart has downwardly revised its annual sales growth guidance for fiscal 2016, from 1%–2% to 0%, citing the adverse impact of a higher-than-expected US dollar. However, sales are expected to rise 3% on a constant-currency basis. Walmart reported $485.7 billion in global sales last year. Walmart’s sales are marginally down year-over-year in 1H16.

You’ll read a more detailed analysis of Walmart’s revenue projections in Parts 3–5 of this series.

Guidance shocks markets

Despite the bullish outlook for its top line, Walmart warned of declining earnings in the near term. It cited higher wage costs and investments in digital, supply chain, and pricing, among others. Walmart’s stock fell more than 10% to close a shade over the psychological $60 level at $60.03 on October 14.

The stock continued to fall on October 15 and 16, taking the weekly loss to 11.7%. WMT closed at $58.89 on October 16, its lowest level since May 2012.

Read more on the earnings and profitability impact of Walmart’s guidance in Part 6 of this series.

Peers Kroger (KR), Target (TGT), Whole Foods Market (WFM), and Costco (COST) followed the downward trend as well. KR, TGT, WFM, and COST fell 3%, 3.5%, 0.96%, and 1.6%, respectively, on October 14.

The Consumer Staples Select Sector SPDR ETF (XLP), which has ~6.1% of its holdings invested in WMT, fell 1.2%. Walmart is the fifth-largest holding in XLP. Walmart also makes up 0.59% of the portfolio holdings in the SPDR S&P 500 ETF (SPY).

Walmart gears up for change

On October 8, in another key update, Walmart announced that the company’s executive vice president and CFO (chief financial officer) Charles Holley will retire at the end of 2015. He’ll be succeeded by Brett Biggs, who has worked as CFO of Walmart International and Walmart US in his 15 years at Walmart.

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