Walmart cuts earnings to invest in employees, customer service

Walmart (NYSE:WMT) reported a cut in its annual earnings outlook because profits are being hindered by pay raises for workers and better customer service.

Earlier this year, the company announced a raise in the minimum wage for hourly workers to $9 per hour by April, and $10 per hour by February 2016. Along with raises, the company is investing in employee training.

"We're pleased that the investments we've made are helping to improve our business," said Doug McMillon, president and CEO at Walmart. "Even if it's not as fast as we would like, the fundamentals of our customers are consistently improving, and it's reflected in our comps and revenue growth."

McMillon explained the changes within the company require investments, which are inevitably going to be reflected in earnings for 2015. But he was confident that the strategic plan would create growth for shareholder returns over time.

However, Walmart reported a 1.5 percent increase in comparable sales for U.S. stores, driven in large part by a 1.3 percent increase in traffic. The Neighborhood Market brand increased comparable sales by 7.3 percent, with improved customer experience scores.

In addition, e-commerce was a big win, with sales up 16 percent globally. 

"We continue to invest in our business to enhance the customer experience," said Charley Holley, exec-VP and CFO at Walmart. "Operating profit will be pressured for the remainder of the year, due to continued investments in store associate wages and additional hours, as well as headwinds from pharmacy reimbursements and ongoing shrink, primarily in Walmart U.S."

The company is increasing spending to between $1.2 billion and $1.5 billion to enhance e-commerce, The Associated Press reported. Walmart is planning to open fulfillment centers dedicated to online sales in an effort to speed up delivery times. It's also testing unlimited free shipping for a membership fee of $50 a year, another way to compete with Amazon Prime's popular membership and delivery program.

For more:
-See The Associated Press article
-See this Walmart press release

Related stories:
Walmart pledges a fresh start
Walmart's counter-Prime Day sale increased in-store traffic
Walmart's plan to win back shoppers
Walmart pressures suppliers to reduce prices
Walmart boosts minimum wage as earnings climb
 

 

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