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Walmart’s Dual Revelations: A Curse for Some, a Boon for Many

Zacks

Wal-Mart Stores, Inc. WMT hogged limelight yesterday, courtesy of its two recent announcements. The big-box retailer surprised employees with plans to increase entry level wage rate for U.S. hourly workers to $11, alongside offering additional benefits to eligible candidates. On the other hand, Wal-Mart’s Sam’s Club unit revealed that it will shut 63 of its 660 outlets in the United States over the next few weeks — a move that will result in several job losses.

Though the wage hike reflects the impact of Trump’s recent tax reforms, we believe that Wal-Mart had to adopt this competitive strategy amid a tightening labor scenario. With the U.S. unemployment level at its 17-year low, retailers are bound to increase wages to attract workers. In fact, one of Wal-Mart’s biggest competitors, Target TGT had raised its minimum hourly wage to $11 toward the end of 2017, with plans to step it up to $15 by 2020.

Thus, it looks like Wal-Mart (which last hiked wages in 2015) is taking efforts to match up to its rivals, with the task having become easier courtesy of the tax overhaul. Moving to its plans to shut Sam’s Club locations, the move followed a strategic business review by the company. While the store closings form part of the company’s efforts to better align locations and lead to an improved Sam’s Club foothold, the closures may benefit major competitors like Costco COST.

Notably, both Target and Costco saw investors rejoice following this supermarket giant’s latest developments, with their shares up 4.6% and 2.1%, respectively. On the contrary, Wal-Mart’s stock didn’t react much to the news. Nevertheless, the retailer’s constant efforts to counter Amazon AMZN and its splendid past record have helped it rally 50.9% over a year, crushing the industry’s 40.3% upside. That said, let’s delve deeper into the announcements and see if they can spur further growth.





The Wage Hike & More

Apart from raising all hourly workers’ minimum wage rate, the world’s largest retailer unveiled plans to extend benefits from maternity and parental leaves and also offer a one-time cash bonus (up to $1,000) to employees. The increased wage, which will come into effect from Feb 17, is incremental to the previously planned wage hikes. Also, it will be applicable to Wal-Mart’s all U.S. associates working in stores, logistics, e-commerce, Sam’s Club and Home Office.

The one-time bonus will be decided depending on the employee’s tenure with Wal-Mart, with those working for 20 years or more entitled to receive $1,000. However, the company will record a discrete one-time charge related to these bonuses. Additionally, the company revealed intentions to financially support workers going for child adoption, by providing them a total of $5,000 per child to be used for various purposes.

The aforementioned changes, which are likely to be gainful for the company’s more than a million hourly workers, were largely encouraged by the reduced corporate tax rate. Management stated that though it is yet to assess the overall implications of the tax reforms on the company, it remains committed toward investing the tax savings for the betterment of customer and employees, alongside undertaking business growth plans.

Sam’s Club Shuts 63 Stores: What’s Ahead?

Per some sources, some of Sam’s Club planned store closures have already taken place, without any notice to employees. Nonetheless, management stated that it remains focused on relocating as many employees possible to other Wal-Mart or Sam’s Club locations. Also, it will support the affected employees with the aforementioned one-time bonus, salary for two months and other compensation for the eligible workers.

The company further stated that the move of shutting down 63 Sam’s Club stores forms part of its planned transformation toward a healthier business. In fact, management stated that out of the stores impacted, up to 12 will be converted to e-commerce fulfillment centers, which will accelerate deliveries of online orders. Thus, this mark yet another e-commerce initiative undertaken by the company which is exploiting every nook and cranny to combat Amazon’s rising dominance. Evidently, Sam’s Club’s e-commerce sales positively impacted its comps by approximately 80 basis points in the third quarter of fiscal 2018, wherein Wal-Mart’s U.S. e-commerce sales surged 50%.

All said, we expect the latest developments to add new leaves to the Zacks Rank #3 (Hold) company’s growth story.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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