Walmart's U.S. employees may be happy to see some incremental wage gains this year and next, but there's another group of people who aren't happy about it at all: Walmart investors.
The world’s largest retailer predicted Wednesday that it will see a drop in profits next year, thanks to its pledge to raise wages for most of its U.S. employees.
That sent the company’s stock reeling. It was trading at US$60.98 as of mid-day Wednesday, down 6.8 per cent from Tuesday’s close. The stock had been down 9 per cent earlier in the day. Zero Hedge blog reports that this marks the largest decline in Walmart’s stock price since September of 1998.
The company sees profits per share dropping between 6 and 12 per cent next year, thanks to a promise it made earlier this year to raise wages for some 500,000 workers in the U.S. The company’s minimum pay rose to $9 per hour in April, and will rise to $10 per hour this coming February.
Some observers criticized the company for what they said was a meagre pay hike that would make little difference in employees’ lives. And news reports indicate the retailer has been cutting workers’ hours to reduce costs since the wage hike.
Walmart CFO Charles Holley said that the wage hike accounts for three-quarters of Walmart’s expected profit decline next year. But stagnant sales are also doing their part. The company says sales in the current fiscal year will be flat, having earlier predicted sales growth of 1 to 2 per cent.
In all, the company says the wage hikes will add $1.2 billion to its payroll this year and $1.5 billion next year.
Walmart announced 450 layoffs at its headquarters in Bentonville, Ark., last month, but some observers say the job cuts aren’t over.
“Now that [Walmart] has just become an activist target … expect the company to proceed with the logical next step after it hikes wages: massive layoffs,” Zero Hedge predicts.
“Congratulations American workers: you lose again!”