Questions came today after Wal-Mart missed earnings with profit margins coming down from 5.6% a year ago to 5.1% this quarter. The retail giant blamed the pharmacy business, shrinkage, and increasing wages. The company now has a starting wage of $9.00 an hour which is set to raise to $10.00 an hour early next year. This increase in wages translates to a 24 cent reduction in profit.
Wage growth is not happening organically according to recent economic reports. But is expected to occur more so next spring, at which time, revenue growth is also expected to accelerate. These two moving at the same time allows companies to maintain profits. Artificial wage growth without top-line improvements causes profits to fall, like we are seeing at Wal-Mart and other companies that moved towards the federal governments desire for a $15 minimum wage.
Some argue that Wal-Mart employees were not making enough to shop at their own stores. Therefore the wage improvements creates a new class of customers. But the earnings out today do not show this to be the case. The stock moved 3% lower after the earnings miss.
US stocks dip as Walmart earnings disappoint