Wal-Mart Stores Inc. cut its projection for full-year sales on Wednesday, citing a stronger dollar and the impact of food stamp reductions, and said its future profits will grow slower, as it is shifting attention to its online business.
The revision caused a lot of attention from analysts and investors as they pointed out how the financial struggle of its core base customers continues to burden the companys earnings and prompted a more cautious approach on the brick-and-mortar store expansion.
The worlds largest retailer said that in the future it will reduce the investments made in building physical stores, redirecting them into its e-commerce business. The company reported that next year it will spend 1.5 billion for its online division, a 50% increase from this one, including building two new fulfillment centers in the United States.
“We will change the mix of our capital spend through reductions in areas we have invested in historically to fund investments in new growth opportunities,” CEO Doug McMillon said. “Overall capital range will be slightly lower than last year with a mix difference toward more e-commerce dollars.”
Wal-Mart unveiled plans to open 60 to 70 super centers in the next financial year, down from 115, and 180-200 smaller stores, compared to the 270-300 in the current fiscal year.
“They want to be careful and thoughtful about that build out. They have the financial wherewithal to ramp it up when the economy is stronger and can absorb it.” said J. Dowe Bynum of Cook & Bynu Capital Management.
The Bentonville, Arkansas-based company said sales for the present fiscal year will rise around 2%-3%, cut down from the 3%-5% previous prediction made by Wal-Mart. This is the 6th straight quarter that the company reported flat or decreasing same-store sales, indicating that a recovery could take longer than expected. To jump start growth, Wal-Mart is focusing on smaller neighborhood stores, rather than big-box super centers.
“We need to develop a more seamless relationship with our customers,” Mr. McMillon said in a statement cited by Bloomberg. “We won’t just be a store on the street. We’ll support our customers’ lives, with them in the driver’s seat, to save them money and time.”
Wal-Mart Stores Inc. slid 3.57% to close at $75.20 on Wednesday in New York, marking a one-year change of +1.12%. Shares scored a day high of $77.69 and a day low of $74.36. The company is valued at $242.33 billion. According to the Financial Times, the 22 analysts offering 12-month price targets for Wal-Mart Stores Inc. have a median target of $80.00, with a high estimate of $90.00 and a low estimate of $69.00. The median estimate represents a 6.38% increase from the last price of $75.20.
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