Walmart projects 2017 revenue decline after billions invested in e-commerce

The retail giant said it has poured billions into its e-commerce and digital initiatives, but ROI isn't expected until 2019.
Written by Natalie Gagliordi, Contributor
Walmart CEO Doug McMillon

Discount retail giant Walmart on Wednesday said it expects operating revenue to decline during the next fiscal year, citing billion-dollar investments in its e-commerce capabilities and employee wages.

The revised revenue outlook caused a bit of panic on Wall Street. Walmart suffered a brutal stock decline -- its biggest in 15 years -- that wiped out nearly $20 billion in the company's market value. Even for the world's largest retailer, which had 2015 revenue of $485.7 billion, that's no chump change.

The Bentonville, Arkansas-based company now expects earnings to decrease 6 percent to 12 percent in fiscal 2017, which ends in January of that year, whereas analysts had estimated an average gain of 4 percent. Sales growth for the current fiscal year is expected to be relatively flat.

In terms of investments, Walmart has been pouring money into e-ecommerce and digital initiatives with the aim of creating a mobile, social, Web and brick-and-mortar revenue cycle. Last week, Walmart announced it was significantly expanding its online grocery services and will now offer curbside pickup for groceries ordered online in eight new markets.

Walmart is also doubling down on its cloud management software. The retailer announced today plans to open source its OneOps code -- technology Walmart gained through a 2013 acquisition that allows the company to move applications between its internal and external private clouds. Walmart said it hopes to overcome issues with cloud lock-in by open-sourcing the software.

Walmart has also built its own cloud datacenters and is bulking up its fleet of national fulfillment centers.

In terms of its employees, Walmart says it has invested in associate wages and training in an effort to attract and retain better talent, as well as improve in-store service. In February, Walmart committed to raising employee wages to $10 per hour by next year.

Looking ahead, Walmart expects spending on e-commerce and digital initiatives to total approximately $900 million next year and $1.1 billion in fiscal 2017 -- with the latter described as Walmart's "heaviest investment period" by CFO Charles Holley. The investments, however, will come at the expense of Walmart's operating income, Holley said.

On the bright side, sales at Walmart stores in the US have gone up over each of the last four quarters after a long period of decline. Walmart's most recent quarterly sales rose 1.5 percent. As for long-term earnings, Walmart expects EPS to rise 5 percent to 10 percent by fiscal 2019.

"We're encouraged by recent customer feedback and will continue to get stronger. Our investments in our people, our stores and our digital capabilities and e-commerce business are the right ones," said Doug McMillon, Walmart president and CEO. "We will be the first to build a seamless customer experience at scale to save our customers not only money but also time."

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