The world's largest retailer cut its annual earnings outlook Tuesday because its profits are being squeezed by pay raises for workers and efforts to make its stores cleaner and friendlier and speed up service. It also reported a 15.1 percent drop in second-quarter profit. Currency fluctuations are also dragging down results.
However, the retailer posted its fourth straight quarter of increases for an important sales measure, and its third straight increase in customer counts for its U.S. Wal-Mart stores.
Wal-Mart, based in Bentonville, Arkansas, is facing challenges on all fronts that have resulted in its shares falling 16 percent this year. Its low-income shoppers are still struggling in an economy that is slowly recovering, though lower gas prices are providing some lift. The company is also facing increasing competition from online king Amazon.com and dollar stores, which are pulling in shoppers seeking low prices and convenience.
"The changes we need to make require investment, and we're pleased with the steps we've taken," Wal-Mart CEO Doug McMillon said, according to a transcript of a recorded message to investors. "We made continued progress towards our plan this quarter. Even if it's not fast as we like, the fundamentals of serving our customers are consistently improving."
Wal-Mart has been doing a number of things to improve its results. It's increasing spending for its online operations to between $1.2 billion and $1.5 billion this year, up from $1 billion last year. It's opening fulfillment centers dedicated to e-commerce that should speed up delivery and put more items in one box. And it's testing an unlimited free-shipping service for $50 a year, undercutting Amazon's popular Amazon Prime, which costs $99 annually.
Wal-Mart's U.S. division, which accounts for 60 percent of the company's total sales, is undergoing a major overhaul under new U.S. CEO Greg Foran.
The company is trying to improve pricing and selection as well as beef up customer service. It raised the minimum wages for its hourly workers to $9 per hour in April. By February 2016, all hourly workers will make at least $10 per hour.
Those raises are part of a $1 billion investment in its workforce that also includes improved training. Wal-Mart is counting on happier employees to improve the experience for customers. The company is freeing more workers to be on the floor or running registers during its peak hours.
But the investments are battering the bottom line.
And Wall Street, unlike WalMart with a view beyond today's fiscal quarter, does not care as much about what's in the portfolio, and long term; as what in the portfolio performed best this quarter and damn the long term. So, screw Wall Street moods has to be a stay-in-business-prospering goal, as Warren Buffet has repeatedly indicated, in more delicate phrasing.
You even can bump into people you know, at the Elk River Walmart. Sears is now KMart and you know what that means, and Walmart has basic clothing too. Costco is based on membership and hence credit security greater than otherwise; and Target has hired its first outside CEO and is in the process of navel gazing and redefining itself; with all the low end clothing outlets stocking goods from vendors in China. Welcome to 21st Century America, and what does Trump have to say about mass merchandising, from China? More that that; what is his policy about it? His answer to what ails us? Oh, wait, sure, "Trust me." He says it so many ways, without specifically saying "Trust me," but kissing the Blarney Stone is not the same as having sensible answers. We wait. We see.