Wal-Mart Stores Inc.(WMT) is about to hike wages of its workers in 2015, according to an internal memo examined by Reuters earlier this month. The wage hike will come into effect in 21 U.S. states on or around Jan 1, 2015 and will impact around 1400 stores. This will also include more than 200 Sam's Clubs in those states. The memo reflects the hike that would take place, given the changes in state minimums.
As per reports, 13 states lifted the minimum wage in 2014, up from 10 states in 2013 and eight in 2012. The minimum wage increased 17% in South Dakota to $8.50 and 2% in Arizona to $8.05. Last month, Wal-Mart’s CEO told reporters that there were less than 6,000 employees who were paid the national minimum wage of $7.25 an hour and that the company was moving toward paying all of its employees more than the federal minimum.
Wal-Mart is the largest private employer in the U.S. with 1.4 million employees. The company is making the changes to its pay structure to comply with the law. However, it would be difficult for the company to operate on tight margins as Wal-Mart’s operating model targets to keep costs under control to attract consumers with low prices.
Wal-Mart is currently grappling with sluggish sales and a tough macro-economic environment. After six weak quarters in a row, Wal-Mart’s third quarter fiscal 2015 earnings came in line with estimates, while revenues were better than expected.
The company however disappointed its investors again and narrowed its earnings guidance for fiscal 2015 in anticipation of higher investments in e-commerce and higher U.S. health care costs, apart from incremental investments in Sam’s Club and volatile tax rates. Not only this, currency headwinds, cut in food stamps and sluggish economic environment can also hurt the top line in the upcoming quarters. Wal-Mart also anticipates a fierce competitive environment ahead of the holiday season. (Read: Wal-Mart's Q3 Earnings In Line, Sales Beat; View Narrowed).
Amid the weak scenario, the company is making efforts to understand the evolving needs of its customers to regain their confidence. The company has shifted its investment plans and will lower investment in larger stores, while investing more in e-commerce initiativesto compete with other online retailers like Amazon.com, Inc. (AMZN).
We believe the hike in minimum wages will keep workers contented and will increase their consumer spending power a bit. Wal-Mart currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the retail sector include Ingles Market, Inc. (IMKTA) and The Kroger Co. (KR). While Ingles Market sports a Zacks Rank #1 (Strong Buy), Kroger holds a Zacks Rank #2 (Buy).
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