Tags: walmart | earnings forecast | pay raises | currency

Wal-Mart Cuts Forecast as It Copes With Pay Raises, Currency

Thursday, 19 Feb 2015 05:45 PM


Wal-Mart Stores Inc., the world’s largest retailer, cut its annual forecast as the company prepares to increase pay for half a million workers and a strong U.S. dollar crimps the value of overseas revenue.

The retailer now expects sales growth of 1 percent to 2 percent this year, down from a previous forecast of as much as 4 percent, according to a statement Thursday. Earnings will be $4.70 to $5.05 a share, reflecting the impact of currency fluctuations and the costs of boosting wages, the company said. Wal-Mart also is stepping up spending on online operations.

“Given the investments we’re making in our worldwide e- commerce initiatives and in our associates through higher wages and training, we expect operating income to be pressured in fiscal 2016,” Chief Financial Officer Charles Holley said in the statement.

The company, long the target of criticism that it underpaid workers, announced the wage increases on Thursday as part of an effort to better train and compensate employees. In April, its staff will begin earning at least $9 an hour, Wal-Mart said. That will rise to $10 by next February. The effort will require an initial investment of $1 billion.

Wal-Mart fell 3.2 percent to close at $83.52 in New York, the biggest one-day decline in four months. The shares have declined 2.8 percent this year, compared with a 1.9 percent gain for the Standard & Poor’s 500 Index.

Currency Impact

Like other global companies such as Coca-Cola Co. and PepsiCo Inc., Wal-Mart also is struggling with currency headwinds. The downbeat forecast overshadowed a positive holiday season for the retailer. Wal-Mart U.S. comparable-store sales — a closely watched benchmark — increased 1.5 percent.

The wage increase will pay off in the long run, but it’s taking a toll now, said Brian Yarbrough, an analyst at Edward Jones in St. Louis. With the move, the average wage for workers will be $12.85 to $13 an hour.

“It’s the right thing to do to reinvest in labor to drive better customer service,” he said. “In the interim, there’s lower guidance. It will impact profitability in 2015.”

An improving U.S. economy and lower fuel costs sent more shoppers to stores over the holidays. Earnings rose to $1.61 a share last quarter, excluding some items, the Bentonville, Arkansas-based company said. Analysts had predicted $1.54 on average, according to data compiled by Bloomberg.

Wal-Mart and its subsidiaries employ about 2.2 million people worldwide, and the company has more than 11,000 stores.

Chief Executive Officer Doug McMillon, who took the post a year ago, has added more fresh produce to U.S. stores, an effort that’s proving popular with shoppers. Falling unemployment and the plunge in gas prices should continue putting more money in consumers’ pockets this year.

“The precipitous drop in gas prices should translate into consumer spending as we progress throughout 2015,” Charles Grom, an analyst at Sterne, Agee & Leach Inc., said in a report.


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Wal-Mart Stores Inc., the world's largest retailer, cut its annual forecast as the company prepares to increase pay for half a million workers and a strong U.S. dollar crimps the value of overseas revenue. The retailer now expects sales growth of 1 percent to 2 percent this...
walmart, earnings forecast, pay raises, currency
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2015-45-19
Thursday, 19 Feb 2015 05:45 PM
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