What Wal-Mart's Wage Hike Could Mean For Target

MarketWatch Pulse

Wal-Mart Stores Inc.'s plan to raise its minimum hourly wage to $9 and give raises to a total of 500,000 Walmart and Sam's Club U.S. employees, or 38% of its total U.S. pool of 1.3 million, doesn't bode well for Target Corp. and other retailers, analysts said on Thursday. Wal-Mart expects the wage hike will cost about $1 billion, or 20 cents a share this year. Hedgeye analysts said the cost impact translates to about $1,870 per employee. If that is extrapolated to Target's roughly 300,000 store-level employees, it would mean an additional $560 million in compensation expense, or about 56 cents in per-share profit, they said. That would reduce Target's 2015 per-share profit forecast by 12.5%, the analysts said. "Wage increase could be imminent for other companies," said Cowen & Co. analyst Oliver Chen in a separate report. The government's most recent data showed the U.S. had 3.3 million minimum wage earners. Wal-Mart said less than 6,000 of its workers make minimum wage. Wal-Mart shares fell 2.7% to be the No. 1 Dow decliner after the company gave a disappointing profit forecast thanks partly to the wage hike. Target fell almost 1% to be the biggest decliner in the S&P Retail Index. Target didn't immediately respond to a request seeking comment.

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