Wal-mart absorbs increased wages, no price increases

[BehindBlueI's]

http://www.marke****ch.com/story/wal-mart-cuts-outlook-as-profit-falls-short-2015-08-18-74855124

One of the many reasons sighted for reduced profits were increased wages. Many on INGO seem to believe that increased wages result in increased prices, as though a business has free reign to increase prices as they see fit. In a competitive environment, this isn't the case of course, but here's further proof.

So, about 24 cents per share is for increased wages and increase hours. Per Wal-mart themselves, additional hours is the "primary driver" of that figure. In short, they underestimated how many man-hours their growth plan was going to take. In comparison, currency fluctuations are eating 13 cents per share. Overestimating what the pharmacies would make and shrinkage (more on that later) are eating 11 cents per share. Note that none of this is a loss, its a reduction from previous estimates. Earnings per share are still estimated at $4.40-$4.70)

They also repurchased $1 Billion of their own stock. Dividends for the quarter were $1.6 Billion. (about half of which goes to the Waltons)

Also interesting are ongoing allegations that "shrinkage" is being manipulated along the chain. Inventory that is on the books is not physically in stores. Wal-mart is pleading ignorance if this is to theft, logistics issues (misplaced items in warehouses, misdelivered items), or playing with the books by store managers and others attempting to write off out-of-date merchandise.

Anyway, more money in the pockets of the lowest income workers has not hurt the business in any significant way and has not impacted consumers. It does bring up the question of why we continue to allow corporate welfare to subsidize them, though, doesn't it?

**EDIT**

Apparently the swear filter doesn't like "market watch" without the space, so I can't link to the article. Here's Wal-mart's press release: http://stock.walmart.com/files/doc_financials/2016/Q2/FY-16-Q2-press-release-final.pdf

 

[GodFearinGunTotin]

I think it's great when a company decides for itself to compensate their employees as they see best.

 

[tbhausen]

LOL... Last letter of "market" and first three letters of "watch".

 

[femurphy77]

The article I read said that they were going to look to their suppliers to make up for the increased wages pushing up their operating expenses. In other words you are correct they aren't raising their prices to make up for the increased costs of these noble wage increases but they are going to demand that their suppliers lower their profit margins. Seems fair enough. REALLY?????

 

[BehindBlueI's]

I think it's great when a company decides for itself to compensate their employees as they see best.

Do you find it curious that Wal-mart execs did an about face on the issue, when 2 years ago the party line was:

Walmart Senior Director of Communications Steven Restivo wrote in an email to The Huffington Post that anyone who argues that the retail giant's prices would be little affected by such a wage increase has a "limited understanding of how a business operates."

(July 2013)

...and that Wal-mart employees get over $6 billion in social benefits due to living below the poverty level?
...and the $1.2 billion or so in direct subsidies they get?
...or the recent pushes to raise federal minimum wage?

Sure, they just decided to raise wages all on their own.

 

[BehindBlueI's]

The article I read said that they were going to look to their suppliers to make up for the increased wages pushing up their operating expenses. In other words you are correct they aren't raising their prices to make up for the increased costs of these noble wage increases but they are going to demand that their suppliers lower their profit margins. Seems fair enough. REALLY?????

That's always been the danger when one retailer holds so much of your business. Again, despite what INGO economics says, what it costs you to make a product is irrelevant to how the market prices it. Wal-mart has a loooot of leverage against smaller companies, and have never been worried about "fair".

 

[steveh_131]

In an appearance on CNBC later that morning, CEO Doug McMillon explained how the company will measure whether its $1 billion investment in employee wages was worth it. When asked by the host what metric it will use, he replied, “Comp store sales.” He went on to explain, “It’ll play through retention, the ability to hire the talent that we need to hire… But ultimately, we want associates who are so excited about taking care of customers, thanking them for shopping with us, things like that, that’s got to show up in sales. Won’t happen immediately, but it will happen.”

Walmart is struggling with customer satisfaction. They're betting that increasing wages will draw better employees, increasing customer satisfaction and thereby increasing profits.

Nothing is being 'absorbed'. This is the free market at work. If we would stop screwing around with it, this could happen more.

Also, it is important to note the huge difference between this and a government-mandated minimum wage. Government mandated wage would not improve their employee base, since all the competing jobs would have to increase wages as well. And since Walmart could not count on higher sales to compensate the higher wages, they would be forced to increase prices.

 

[mondomojo]

The article I read said that they were going to look to their suppliers to make up for the increased wages pushing up their operating expenses. In other words you are correct they aren't raising their prices to make up for the increased costs of these noble wage increases but they are going to demand that their suppliers lower their profit margins. Seems fair enough. REALLY?????

What often ends up happening when they demand lower prices from their suppliers is that the suppliers lower the quality of products they supply to meet Walmarts' unreasonable price demands. An example of this is with some Black and Decker tools the external appearance is the same as in other stores, but internally less reliable plastic parts are substituted for metal parts to reduce production costs. You can often identify these items by the model numbers, which will be slightly different at a walmart than at other stores. In the end the consumer gets screwed because they get sub-par products while thinking they are saving money. This is one of many reasons I avoid shopping at this corporate welfare sponge. If you do shop there, buyer beware.

 

[bwframe]

Amazon is the new equalizer and they drag a lot of smaller Internet players (partners and not) along with them. I would not bet on anything consistent out of Walmart in the upcoming years as they try their best to not get caught up in the toilet swirl.

 

[GodFearinGunTotin]

Do you find it curious that Wal-mart execs did an about face on the issue, when 2 years ago the party line was:

(July 2013)

...and that Wal-mart employees get over $6 billion in social benefits due to living below the poverty level?
...and the $1.2 billion or so in direct subsidies they get?
...or the recent pushes to raise federal minimum wage?

Sure, they just decided to raise wages all on their own.

I know it's fashionable to pick on Walmart, since they're the big dog in retail. But retail has always been on the lower end of the salary range (my mom and dad would attest to this). As mentioned up thread, business conditions may have forced their hand; maybe they had a change of heart; who knows. But no doubt it's better it happen internally rather than forced by the .gov.

 

[Mr Evilwrench]

So this hasn't been going on long enough for a solid evaluation, then? We gonna take odds on how long before they have to give up the rainbows and fairy dust and raise their prices?

 

[Kirk Freeman]

Note that none of this is a loss, its a reduction from previous estimates. Earnings per share are still estimated at $4.40-$4.70)

Ok, great, Wal-Mart's CFO is doing a heck of a good job. Give him an SUV for Christmas.

However, he cannot run in place forever.

 

[TB1999]

They could save money for sure if they stopped paying 3 people to do 1 persons job.

 

[BehindBlueI's]

I know it's fashionable to pick on Walmart, since they're the big dog in retail. But retail has always been on the lower end of the salary range (my mom and dad would attest to this). As mentioned up thread, business conditions may have forced their hand; maybe they had a change of heart; who knows. But no doubt it's better it happen internally rather than forced by the .gov.

Wal-mart does't pay average retail wages, despite being a large downward force on retail wages. I would say that seeing the writing on the wall of reduced handouts due to public backlash and the real possibility of a minimum wage increase played into the decision. It's not just they had a change of heart, they went from scare tactics about the evils of a raise to a look how great a raise is narrative.

Walmart is struggling with customer satisfaction. They're betting that increasing wages will draw better employees, increasing customer satisfaction and thereby increasing profits.

Nothing is being 'absorbed'. This is the free market at work. If we would stop screwing around with it, this could happen more.

Also, it is important to note the huge difference between this and a government-mandated minimum wage. Government mandated wage would not improve their employee base, since all the competing jobs would have to increase wages as well. And since Walmart could not count on higher sales to compensate the higher wages, they would be forced to increase prices.

What do you think "absorbed" means?

 

[Leadeye]

I have to wonder what their chinese vendors will do, currency manipulation may cover this as every thing they sell to WM will cost less.

 

[Redtbird]

LOL... Last letter of "market" and first three letters of "watch".

I've seen Saturday with the four letter in the middle **** out!

 

[BehindBlueI's]

I have to wonder what their chinese vendors will do, currency manipulation may cover this as every thing they sell to WM will cost less.

Yeah, I'm not sure how this is playing out. A strong dollar should allow the US companies to buy more widgets per dollar, so you'd think Wal-mart would be a winner in that. Wal-mart has really pushed international and gets nearly a third of their income and even more of their growth from business outside of the US, so that also means it's harder for foreigners to buy widgets at their El Wal-Marto or whatever.

 

[indyjs]

Went to the us31 south store today. Seems like most of the employees were standing in groups talking to each other. The ones in housewares were discussing best chicken places

 

[Cygnus]

LOL... Last letter of "market" and first three letters of "watch".

I've seen Saturday with the four letter in the middle **** out!

Yet I can still spell "The pen is mightier","Therapist" or even ""Schuck it Trebek"

 

[BehindBlueI's]

Went to the us31 south store today. Seems like most of the employees were standing in groups talking to each other. The ones in housewares were discussing best chicken places

What was the consensus? Maxine's Chicken and Waffles for me.