What Does Lower Sales Outlook from Wal-Mart Stores, Inc. (NYSE:WMT) Indicate?

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Wal-Mart Stores, Inc. (NYSE:WMT) has spooked investors with a tepid sales outlook. The below par sales outlook came on the tail-end of yet another dismal quarter. where profits were down by 7.9%. A 1.4% decline in revenue yet again highlighted the problems the chain is facing as same-store sales continue to decline.

Sales Growth Concerns

Cutting back the company’s sales outlook made four months ago has not gone well with investors. The cut comes on back of heavy spending on store upgrades and a desire to bolster e-commerce prospects. It appears Wal-Mart Stores, Inc. (NYSE:WMT) does not believe the changes initiated in the recent past have the potential to trigger quick growth.

Wal-Mart expects sales for the current quarter to come in ‘relatively flat’, a downgrade from a previous guidance of a growth of between 3 and 4%. A point of concern to the Street is that the cut could represent a string of repeated forecast cuts going forward. Such downgrades also come at a time when the retailer is aggressively shutting down some stores.

The strengthening of the dollar also continues to hurt Wal-Mart Stores, Inc. (NYSE:WMT) earnings from abroad. The retailer has tried to quash concerns about sales declines by reiterating that excluding currency fluctuations sales growth could have come in, as expected. However, weaker sales forecasts continue to raise further doubts.

Impact of Changing Shopping Habits

A lower sales outlook also highlights the impact of shopping habits among the American people. The US economy is solid with consumers benefiting from higher wages, lower unemployment, as well as cheap gasoline. However, big retailers are not reaping the benefits of solid economy consumers having shifted their shopping patterns to online at the expense of brick and mortar stores.

CEO, Doug McMillion, has moved to quash investor concerns by asking most of them to accept lower profits for the short term. The executive remains confident of a brighter future as they continue to invest on new areas of growth. Wal-Mart Stores, Inc. (NYSE:WMT) is spending heavily on store improvements and e-commerce, efforts it believes will pay off in the long run.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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