Walmart warns that strong U.S. dollar will cost $15B in sales, sending stock down 10%

Walmart Stores. Inc shares lost more than 10 per cent of their value after the world's largest retailer said a strong U.S. dollar will take a $15 billion bite out of the company's revenues.
Walmart CEO Doug McMillon says the strong U.S. dollar will cost the company $15 billion this year, news that sent the shares sharply lower. (Danny Johnston/Associated Press)

Walmart Stores. Inc shares lost more than 10 per cent of their value after the world's largest retailer said a strong U.S. dollar will take a $15 billion US bite out of the company's revenues.

The stock fell to a three-year low of $60.18 US per share on Wednesday, wiping more than $21 billion from the company's market capitalization.

The showing is also on track to be the worst one-day performance for Walmart since 1998. 

Prior to the warning from CEO Doug McMillon about the impact of the dollar, the company was forecasting sales to grow one to two per cent this year.

The company now says it expects earnings per share to shrink by between six and 12 per cent.

Currency problems

A strong dollar is a double-edged sword for Walmart: good because it helps the company when buying from its suppliers at rock bottom prices, but bad for its international sales because earnings from outside the U.S. bring in less revenue after those sales are domiciled back into U.S. dollars.

​The company also announced a $20 billion share buyback, but it was not enough to put a floor under the stock price.

The company also said moves to bring in new technology will pay off over the long term, but cost money in the short term.

"We can deliver stronger financial performance in the short-term simply by running our core business better but that won't be enough," McMillon said.

Investor reaction

"The guidance is very disappointing," Edward Jones analyst Brian Yarbrough said. "What if these investments don't lead to better sales. That's the biggest question."

McMillon said earlier on CNBC that the strong dollar would likely reduce the company's full-year revenue by $15 billion.

He also said Walmart would add 3,000 department managers in the United States this year to improve its curbside grocery pickup service ahead of the holiday season.

"The opportunity to leverage stores for pickup is a huge one ... we are announcing 11 more markets now and will be up to more 20 markets in the U.S. by end of this year," he said.

Wal-Mart said last month it would expand free grocery pickup service as it seeks to capitalize on its network of physical stores amid growing competition with and others investing in home delivery.

Wal-Mart has been grappling with sluggish sales, leading investor to seek significant changes.

The company announced a new chief financial officer and appointed a chief merchant last week.

With files from Reuters


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