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walmart.com fulfillment - boxes on beltWal-Mart Stores missed analyst expectations for the first quarter, reporting a 7 percent drop in profit as employee raises and spending on e-commerce weighed down the bottom line.

“We’re investing to win the future of retail, and I’m excited about the possibilities that our improved e-commerce capabilities will provide,” said Doug McMillon, President and CEO, Wal-Mart Stores in a call with analysts. “We’re making progress on rolling out our global technology platform to make e-commerce and mobile shopping easier for customers.”

The company reported a first-quarter profit of $3.34 billion, or $1.03 a share, excluding some items, falling short of analyst expectations, which were hoping for earnings of $1.05, according to data compiled by Bloomberg. A year earlier in the same period, it reported a profit of $3.59 billion and $1.11 a share.

walmart Q1 chart1

In February, Walmart announced that it would raise the minimum wage of its employees to at least $9 an hour this year and up to $10 by next year. The higher wages are expected to result in better customer service and higher revenues over the long-term, but for now the investments are leading to lower operating profits.

The world’s largest retailer said operating income declined 6.8 percent to $336 million for the quarter.

Still, e-commerce sales were a bright spot, increasing about 17 percent globally.

Wal-Mart Stores’ e-commerce investments include a laundry list of action items, including a new unlimited shipping service that is aiming to rival Amazon’s own Prime subscription program. Called Unlimited shipping, the program will cost $50 a year, or half as much as Amazon’s shipping program. Walmart.com is currently asking people to sign up for a wait list who are interested in participating in the pilot.

McMillon said they are also launching the final phase of its new platform related to cart and online checkout capabilities, and said mobile traffic was up over 100 percent for the quarter.

Going forward, Walmart expects full-year earnings to be negatively impacted by strategic investments in higher wages and training, which will cost the retailer $0.20 per share. E-commerce investments are expected to cost between $0.06 to $0.09 per share. In Q1, it said associate wages and training impacted earnings and e-commerce spending impacted by $0.02 per share each.

Wal-Mart Stores’ shares were down 4 percent, or $3.20, to trade at $76.70 a share.

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