Walmart’s Wage Problem Hits Investors


Walmart (NYSE:WMT) is getting whacked by higher expenses, among them, wages. The world’s largest retailer cut its profit outlook for the full year on Tuesday just months after boosting pay for 500,000 associates.

“Operating profit will be pressured for the remainder of the year due to continued investments in store associate wages and additional hours,” explained Chief Financial Officer Charles Holley. Walmart now expects to earn as much as $4.70 a share for the year, down from the previous estimate of as much as $5.05 a share. Revenue for the quarter reported was $120 billion and comp-store sales, which includes Sam's Club, rose 1.5%.

Even before Tuesday’s admission, Wall Street was skeptical. Walmart shares have lost 19% this year which coincides with its decision in April to bump its minimum pay to $9 an hour for new hires. Current associates will earn at least $10 an hour by February of 2016 and some department managers will get a raise to at least $13 an hour this summer and at least $15 an hour early next year.

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While higher wages are aimed at fostering employee growth which in turn could help improve the customer service, CEO Doug McMillon acknowledged the retailer could have done better in controlling certain expenses, including wages. “We did fall short on managing the bottom line; during the quarter operating expenses were higher than expected,” he said on the company’s earnings conference call. He added that the retailer would manage these items closely for the rest of the year including “cutting costs even in a period of investment.”

For now, the team at Standard & Poor’s Ratings services says increases in the U.S. will continue pressuring earnings in fiscal 2016 leading some, including FOX Business Contributor Steve Moore of the Heritage Foundation, to wonder whether “this will require Walmart to raise prices?”

Walmart is among at least seven major Fortune 500 companies that have boosted wages or plan to including Target (NYSE:TGT) and TJX (NYSE:TJX), which owns TJ Maxx and Marshalls. TJX shares hit an all-time high Tuesday while Target reached an all-time high in June.