Walmart reports third-quarter results on Thursday.
Last month, Walmart held an analyst meeting. CEO Doug McMillon outlined four key areas of focus for the company: to make everyday life easier for families; to operate with discipline, including a continued focus on expense management; to be the most trusted retailer; and to deliver results and position the company to win.
All of those focus areas sound expensive.
I was left with the impression the company would continue to make investments in itself, which would limit earnings growth and pressure margins. For example, management plans to continue spending heavily on training for its associates. It plans to better manage inventory levels to increase in-stock performance. It plans to improve freshness in its grocery departments. And management also plans to expand online grocery shopping to 600 stores and 100 markets by the end of fiscal 2017.
Last year, selling, general and administrative expenses rose to 4.2% of revenue from 1.9% the year before, as management pumped billions back into the business. The spending wrecked operating margins, which fell from 5.7% to 5.0%. With the continued heavy spending, operating margins are expected to end fiscal 2017 at just 4.8%, and 4.6% next year. That means operating income is expected to fall from $27.5 billion in fiscal 2015 to $22.9 billion by 2018. That's a big drop!