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.
“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.
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