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Walmart shocks markets with profit warning

Last updated: 08:55 15 Oct 2015 BST, First published: 12:35 15 Oct 2015 BST

Wal-Mart shocks markets with profit warning
Wal-Mart owns Asda supermarkets in the UK

--- Adds detail on Asda ---

The world's largest retailer Walmart (NYSE:WMT) shocked investors by predicting lower annual profits, sparking the worst fall in its shares for 27 years.

The retailer said earnings would fall between 6% and 12% in the 2017 financial year, compared to market expectations of a 4% gain. Operating expenses would rise faster than sales in the current fiscal year, the retailer said. It predicted that net sales will grow 3%-4% annually in the next three years, but they will be relatively flat this year.

Shares dropped US$6.70 or 10% to US$60.03, the biggest dip since January 1988, and the stock's lowest level since March 2012. It wiped £13bn off the group's value.

Walmart did not comment on its UK arm Asda, although the British supermarket chain also disappointed the market in August.

It posted a 4.7% fall in like-for-like sales for the 11 weeks to June 30, against a turbulent background as established UK supermarkets battle competition from discounters and low price inflation.

Asda president and chief executive Andy Clarke stated his commitment to the remaining three years of his five -year strategy, describing the quarter’s number as “disappointing, but a short-term picture”.

“We continue to navigate a steady course through the worst storm in retail history, despite another challenging quarter," he said at the time.

Asda also confirmed this week that Roger Burnley, Sainsbury's retail and operations director, is to join it as its new chief operating officer next year.

Walmart blamed the profit fall on the strength of the dollar, plus spending to increase wages, improve its stores and boost online sales.

In April, it raised the minimum hourly wage for shop staff to US$9 and plans to increase it to US$10 next year.

The higher pay will add US$1.2bn to costs this year and another US$1.5bn next year, it said.

The company’s chief executive, Doug McMillon, told CNBC on Wednesday that the strong dollar would likely reduce the company's full-year revenue by US$15bn.

McMillon said the company gets about a third of revenue and a quarter of profit from outside the US.

Walmart also said its board had authorised $20bn in stock buybacks over a two-year period.

Walmart, which has been struggling with sluggish sales, announced a new chief financial officer and appointed a chief merchant last week.

The US stock market fell after the news and data showing US retail sales for September missed expectations.

Mike van Dulken at Accendo Markets said: "US markets closed lower after the Wal-Mart profit warnings dented sentiment."

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