Wal-Mart Warns Its Profits Could See a Dramatic Decline in Fiscal 2016

Institutional investors had a rare negative reaction to Wal-Mart’s $20 billion share buyback, announced on Wednesday along with a prediction that its profit would decline in fiscal 2016.

Fortune reported that Wal-Mart’s shares were down nearly 9% in recent trading, experiencing the biggest drop the company's stock has seen in 15 years and wiping out nearly $20 billion in the company’s market value. The chain originally was anticipating a small margin of sales growth for the fiscal year, but surprised Wall Street on Wednesday when it announced that it was cutting back its forecast.

According to CNBC, Wal-Mart projects the following:

• Net sales growth is expected to be flat due to foreign exchange impact for fiscal year 2016.
• Fiscal year 2016 also reiterates EPS guidance of $4.40 - $4.70.
• EPS down 6 to 12% from prior year for fiscal year 2017 with heaviest investment planned.
• Fiscal Year 2018 expected to be relatively flat from prior year.
• EPS up 5 to 10% from prior year for fiscal year 2019, expected to grow to today’s level.

Despite the hits, however, Fortune reports that Wal-Mart did have a carrot to offer its investors. The chain gave a forecast that calls for annual sales to rise as much as $60 billion in the next three years, as well as a new $20 billion share buyback program over that time period.

In an interview with CNBC on Wednesday, Wal-Mart President and CEO Doug McMillon stated that the investments the company has made in people, training, in-stock, and faster checkout are starting to pay off, saying that further investment in stores and tech is how it would win. He added in the interview that the company would address concerns by providing revenue and earnings guidance, as well as a forecast for capital needs, for the next three years at its analyst meeting, acknowledging that not everyone is buying into Wal-Mart's long-term investment story.

Wal-Mart added another significant cost to its 2015 expenses when it announced a $1.2 billion wage increase for its employees. Additionally, Wal-Mart CFO Charles Holley, who will soon retire his position to Brett Biggs, warned at the chain’s annual investor meeting that further investments in ecommerce ($900 million next year, and $1.1 billion year the following year) would continue to pressure earnings. He also cautioned that relief could still be years away.

DeliMarket News will continue to report on this story as more information comes to light, as well as other major retail moves as they influence the industry.