Wal-Mart: Boosting Workers’ Wages Helps Sink Profits

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The retail giant's stock took a plunge on Wall Street, but the company projected investments would pay off in coming years.

Wal-Mart company executives say huge investments in employee wages and training, in addition to expanding its e-commerce and grocery offerings, will cut into profits by about $1.5 billion next year.

The company’s announcement, which came as a surprise to many investors, caused the retail giant’s stock price to tumble 10 percent Wednesday, its biggest one-day plunge in 17 years.

Wal-Mart chief financial officer Charles Holley, who plans to retire at the end of 2015, said earnings took the biggest hit from boosting workers’ hourly wages, according to The Wall Street Journal.

“We expect earnings per share to decline between 6 and 12 percent in fiscal year 2017, however by fiscal year 2019 we would expect earnings per share to increase by approximately 5 to 10 percent compared to the prior year,” Holley said in a press release.

Wal-Mart’s short-term profits will also take a hit from the retail giant’s planned investment in e-commerce and grocery items, as Wal-Mart expands its products and services in an attempt to better compete with Amazon.

Brian Yarbrough, an analyst with Edward Jones, told CNN Money that Wal-Mart is losing customers to grocery stores like Kroger. More than half of Wal-Mart’s overall sales are grocery related.

Yarbrough said Wal-Mart needs to reassert itself as a convenient and affordable grocery store option for consumers.

“The customer is not buying groceries there. How does Wal-Mart fix that?” Yarbrough said. “They are in an extremely tough position. It’s hard to bring in new customers but it’s easy to lose them.”

Wal-Mart recently launched a curbside grocery pickup service.

What do you think of Wal-Mart’s planned investments and investors’ knee-jerk reaction? Share your comments below or on our Facebook page.

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