(MENAFN- AFP) Walmart trimmed its full-year earnings forecast on Tuesday following the major acquisition of India's online retailer Flipkart and vowed to plow ahead with more investment in the battle for retail market share with Amazon.
Walmart, which also signaled that sales growth at US stores could slow next year, said heavy investment was needed to meet customer expectations in a fast-changing retail environment. Investors appeared to buy that view, bidding shares higher after early weakness.
"A business that won't invest won't last," Walmart Chief Financial Officer Brett Biggs said during a presentation at investor day. "The payoff from past investments is paying for new investments."
Biggs reiterated the company's concerns about tariffs from ongoing US trade conflicts with China and others but said it would work to minimize the effect on consumers.
"Our goal is to always be the low-price leader," he said.
The world's biggest retailer cut its profit target for the current year to a range of $2.65 to $2.80 per share from the prior range of $2.90 to $3.05 following the hit from Flipkart. Walmart also signaled that spending on Flipkart would also dent profit levels next year, its fiscal 2020.
Walmart closed the $16 billion acquisition of a 77 percent stake in Flipkart in August, its biggest-ever deal.
Walmart executives, who have occasionally taken heat in recent years over heavy investment on higher store wages, eCommerce and acquisitions, vowed to stay the course as it adapted to the changing retail environment.
Shares of Walmart, which had initially sunk on the forecast, rose 1.8 percent to $95.54 in morning trading as investors seemed to take the heavy spending in stride.
"They need to invest because they are looking over their shoulder at Amazon, which is breathing down their neck," said CFRA Research analyst Tuna Amobi.
- Big push in groceries -
Before sealing the deal for Flipkart, Walmart competed directly with Amazon, which had designs on accelerating its own growth in India. Flipkart and Amazon have been going head-to-head in a costly battle for domination of one of the fastest growing online retail markets since 2013.
Walmart's revenues last year were more than twice that of Amazon, but the latter has seen massive growth as it has expanded into more business lines and further afield from its Seattle home and original mission of selling books online.
But just as Amazon has made more forays into brick-and-mortar retail with its purchase of Whole Foods Market and the opening of some of its own physical stores, Walmart has made major eCommerce acquisitions and spent heavily on mobile applications and other tech-oriented services.
Walmart is also taking more steps in entertainment -- another area in which Amazon is active -- unveiling last week a joint venture with Eko, an interactive video company, to create content such as cooking shows.
At the same time, Walmart executives have tried to boost the in-store shopping experience, raising wages and investing in store beautification.
The company plans about $11 billion in capital spending next year, about level with the current year, but will spend very little on new stores, executives said.
Chief Executive Doug McMillon said higher wages had lessened employee turnover in the United States and have a multi-year streak of US comparable store sale growth.
"We have momentum and customers are responding to the investments we've made the last few years," McMillon said.
Walmart projected that comparable sales growth at US stores next year -- fiscal 2020 -- would be 2.5 percent to 3.0 percent. Walmart's US sales are on track for 3.0 percent growth this year, the company said in August.
Walmart projected that eCommerce growth next year would be about 35 percent, slower growth than 40 percent expected this year.
The company will have grown its four-year-old program that lets customers pick up groceries to 2,000 stores by the end of 2018. The company seeks to build out the program further with its US network of 4,761 stores in the years ahead.
"Having fresh food within 10 miles of 90 percent of the nation's population is a structural advantage, which we're leveraging," McMillon said.
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