Wal-Mart is down 2.15% in premarket trading this morning, after the company reported first quarter earnings that were weaker than expected. Wal-Mart reported net income of $1.03 earnings per share on revenue of $114 billion. Analysts polled were estimating earnings per share of $1.05 on revenue of $115.6 billion. Aside from missing analysts’ estimates, Wal-Mart’s results were both lower than first quarter 2014. Wal-Mart executives blamed currency risk, raised wages, and higher investments into other areas of the business.
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Wal-Mart sees costs rise with wage hike
In February 2015, Wal-Mart made headlines for announcing that the company would raise its minimum wage of all its employees to $9 an hour for 2015 and is set to rise to $10 in 2016. The idea here was to cut costs that come with employee turnover. The thought being here is that if Wal-Mart raises its minimum wage, then they will be able to save money by not needing to training and hire new workers on a consistent basis. Additionally, increased wages improves moral and worker satisfaction.
Currency risk, weak same store sales, and investments add to the weak quarter
While Wal-Mart’s US stores that have been open for over a year saw same store sales increase 1.1%. However, Wal-Mart’s Sam’s Club stores saw same store sales decline 3.8%, despite low gas prices. Executives attribute this to the continued cautious stance that American consumers hold. However, Wal-Mart executives unveiled a new concept that the company has been developing and pouring money into: ecommerce. Wal-Mart officially announced last week that they will be unveiling a new pilot program during this summer that is supposed to rival Amazon’s Prime service. It is unknown the projected cost of the service, where it will service, etc. However, we are beginning to see Wal-Mart take on one of its largest competitors in Amazon.
Overall, Wal-Mart had a weak quarter. Currency risk, increased wages, investments and weak same store sales brought this quarter to underperform. However, there are some positives walking away from this quarter. I would argue that the ecommerce service to rival Prime could be very well received if priced and marketed correctly.