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Instant Analysis: Wal-Mart Stores, Inc. Set to Raise Wages for 1.2 Million Employees

By Jeremy Bowman - Jan 22, 2016 at 2:30PM

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Wal-Mart is making a huge bet on its employees. Will it pay off?

What happened? 
Elaborating on its earlier announcement that it would raise its minimum wage to $10 an hour in February, Wal-Mart Stores ( WMT 1.51% ) released a slew of other employee raises and benefits earlier this week.

  • In all, 1.2 million Wal-Mart employees will receive raises next month. This includes those earning less than $10 an hour.
  • Associates earning more than $10 an hour will receive their annual raise in February, instead of waiting for their work anniversary.
  • Associates above their pay band will receive a one-time lump-sum payment of 2% of their salary. For someone making $10 an hour, that's about $400.

After the raises go into effect, average full-time wages at Wal-Mart will be $13.38 an hour. 

Wal-Mart is also improving its Paid Time Off policy, allowing workers to use it as soon as they receive it, and letting them to carry up to 80 hours from year to year or otherwise receive payouts for it. 

Does it matter?
Wal-Mart is investing $2.7 billion over this year and last into improving wages and training for its employees. It's the most important initiative CEO Doug McMillion has announced since taking over two years ago.

The move should help to spruce up service and appearance at stores, fix inventory problems, and reduce long lines at the checkout. Store performance has been improving, the company claims, and comparable sales are up modestly, having increased for five quarters in a row.

However, those increases in wages have taken their toll on company profits. The stock tumbled in October after the company reduced its guidance for fiscal 2016, and warned of wage pressure in fiscal 2017. Analysts now expect its EPS to fall from $5.07 in fiscal 2015 to $4.53 in fiscal 2016, and then to $4.17 in fiscal 2017.

Improving customer satisfaction is a must for Wal-Mart, but it's losing its status as the low-price leader, its core competitive advantage. Forced to play to catch up, the company will struggle to regain those lost profits.

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