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Costco Wholesale Corporation to Increase Minimum Wage for First Time in Nine Years

Costco Wholesale said to raise its starting wage for the first time in nine years, hiking the rate by $1.50/hr. to $13-13.50 in the US from $11.50-12

In a conference call with analysts, Costco Wholesale Corporation (NASDAQ:COST) announced that it plans to increase its minimum wage for the first time since 2007, as the labor market tightens and its rivals have started to give raise to their workers.

According to the world’s second largest retailer, it will start to pay $13-13.50 per hour, as opposed to the current level of $11.50-to-$12 per hour. Due to the wage raise, the company expects its earnings per share (EPS) to plunge by $0.01, and by $0.02 in the next three months.

One of the Costco’s rivals, Walmart, a largest retailer in the US, has recently surged its pay floor to $10 per hour this year and has given a raise to more than one million workers.The corporation did not mention how many of its 117,000 workers are actually expected to get a raise.

Costco’s Chief Financial Officer, Richard Galanti stated in a press release: “It will help, and it is important to do. “This is a physically challenging job. You’re on your feet, lifting cases, moving carts, and we thought it was time to do it.”

The highest hourly wage of Costco is $22.50 and it now plans to pay nearly 2.5% increment this year. On an average, it approximately takes four years for a full-time Costco employee to reach at the top of the pay scale.

Costco recently announced its earnings for the fourth quarter of fiscal year 2016 (4QFY16). In the earnings, the giant retailer reported consolidated revenue of $28.17 billion, 2.6% more than $26.8 billion it had in the same quarter last year. The reported revenue is less than the expected figure of $28.42 billion.

Diluted earnings per share came in at $1.24 on the net profit of $546 million, down 8.7% from the last year’s figure of $598 million, or $1.35 per share. However, the reported EPS was less than analysts’ expectation of $1.28.

According to the world’s largest retailer, it failed to meet revenue forecast because of lower shoppers traffic in January due to harsh weather conditions that slowed the momentum.

The total same-store sales, excluding the negative impacts from gasoline price deflation and foreign exchange for the company were up 3% at its domestic locations. On the other side, same-store sales in Canada and other international markets, including gasoline price deflation and foreign exchange impacts, went down 7% and 3%, respectively.

In January, in a press release publish by Costco Wholesale, the entity revealed that it has gained net sales of $12.45 billion for the last month of December, five weeks ended on January 3, 2016. The sales value was 3% higher as opposed to $12.13 billion it had in same period a year ago.

The giant retailer is also investing in expansion of its e-commerce capabilities in US, Canada, Mexico, Korea, and UK.

Costco is one of the dominant retail wholesalers in the US. It offers a differentiated product range which enables the company to provide an upscale shopping experience for its customers, hence resulting in higher market share.

The wholesale industry is however facing currently numerous challenges, as we described already here and briefly when discussing NCR Counterpoint POS, a software bundle that addresses the business requirements of the wholesale industry.

Recently, the giant retailer also announced that its board has approved quarterly dividend of $0.40 per share, which is line with the previous announced dividend. The quarterly dividend was payable on February 26, to the shareholders of record at the close of business on February 12, 2016.

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