By Lucy Ren
Wal-Mart Stores Inc. announced on Thursday that approximately 500,000 associates at its U.S. stores would receive a minimum hourly pay of $9 in April, a 24 percent increase from today’s federal minimum wage.
Wal-Mart U.S. will increase its minimum monthly wage by another dollar by next February. According to President and Chief Executive Officer Doug McMillon, the investment in pay and training for U.S. associates will total more than $1 billion for the current fiscal year.
Wal-Mart’s stock fell by 3.2 percent on Thursday after the announcement, which came as part of the company’s earnings report for the quarter ended on Jan.31.
“There are concerns about how the wage raise will impact their cost structure,” said Ken Perkins, analyst with Morningstar. He opined that Wal-Mart was “re-allying its workers” and “forcing its competitors to raise their wages” to attract more qualified employees, according to Wal-Mart officials on the company’s conference call.
In addition, Wal-Mart lowered its outlook for fiscal year 2016 sales growth to be between 1 and 2 percent, versus the 2 to 4 percent provided in October. The company said it expects earnings per share to be between 95 cents to $1.10 for the current quarter, while analysts expected $1.14 per share, according to Bloomberg.
Mark Miller, research analyst at William Blair & Company L.L.C., wrote in a note that Wal-Mart’s higher labor costs, or in the company’s words, “investment,” could be viewed as “recurring and defensive in nature.” That suggests retailers are having to increase wages to attract the best employees.
For the quarter ended on Jan. 31, Wal-Mart reported a rise in earnings per share to $1.53 from $1.34 a year ago, beating the consensus estimate of $1.526. When adjusted for the cost of litigation and the closure of 30 stores in Japan, Wal-Mart reported earnings per share of $1.61, above the analysts’ consensus estimate of $1.54.
Wal-Mart reported a 12 percent rise in net income for the quarter to $4.97 billion, or $1.53 per diluted share, from $4.43 billion, or $1.36 per diluted share, as customers gained spending power due to lower gas prices, and fuel profit increased at Sam’s Club, a subsidiary of the retail giant.
Revenue for the fourth quarter increased 1.4 percent to $131.6 billion from $129.7 billion, despite a negative impact from the strong U.S. dollar of approximately $2.6 billion. For the full year, revenue increased 2 percent to $485.7 billion.
Sales in Wal-Mart’s international division fell 3.9 percent to $36.2 billion in the fourth quarter, but excluding the impact of the strong U.S. dollar on currency translations, sales in the quarter would have risen 3.1 percent, the company said.
“There is potential for growth in Wal-Mart’s international markets,” Perkins said, “but the company will continue facing the headwinds from the strengthening U.S. dollar.”
In its earnings call, Wal-Mart International President David Cheesewright highlighted the company’s expanding online presence, as e-commerce sales globally rose approximately 22 percent for the full year.
Wal-Mart’s stock closed at $83.52 on Thursday, down $2.77.
