Walmart: Wage hikes are killing our profits

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NEW YORK — Wall Street rolled back Walmart’s stock price Wednesday after the retailer issued a gloomy outlook.

Walmart said the strong dollar was hurting sales this year and that wage increases for its employees would eat into profits next year.

Shares of Walmart plunged over 9% to a 3-year low on the news. It was the worst percentage loss for the stock since 1998.

Walmart chief financial officer Charles Holley said that investments in wages and training would lower operating profits by about $1.5 billion in fiscal 2017 — essentially all of next year and January 2017.

As a result, Holley said overall earnings were likely to be down between 6% and 12% from this year. The hope, Holley added, is that earnings would be growing again by 2019.

Walmart had been under increased pressure to pay employees more. It finally agreed to do so for about 100,000 workers in June.

Several cities and states have forced the issue by raising local minimum wages.

So higher labor costs are suddenly a major pressure point for Walmart as well as companies like Target and McDonald’s.

But Walmart has bigger concerns than how much it pays its workers. Sales have been sluggish due to tough competition from Target, Costco and Amazon.

Walmart is also investing heavily to try and catch up online. And that will hurt profits in the short-term as well.

Walmart’s bad news was greeted as a negative for the entire retail sector.

Shares of Target fell more than 4% while Kohl’s, Sears and JCPenney all sank as well.

Walmart’s bombshell follows a weak retail sales report from the government on Wednesday.

Consumer spending barely budged in September, and August’s retail sales figures were revised lower to show that spending was essentially flat.

Walmart also said it was planning to buy back $20 billion in stock. However, that wasn’t enough to offset the terrible guidance.

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